The text of the bill below is as of Nov 6, 1978 (Passed Congress).
You are reading a bill enacted 16,212 days ago. In the intervening time subsequent legislation may have amended or repealed the provisions below.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2763
Public Law 95-600
95th Congress
An Act
To amend the Internal Revenue Code of 1954 to reduce income taxes, and Nov. 6, 1978
for other purposes. [H.R. 13511]
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, Revenue Act of
1Q78
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the "Revenue Act of 26 use i note.
1978".
(b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
Sec. 2. Amendment of 1954 Code.
Sec. 3. Policy with respect to additional tax reductions.
TITLE I-PROVISIONS PRIMARILY AFFECTING INDIVIDUAL INCOME TAX
Subtitle A—Tax Reductions and Extensions
Sec. 101. Widening of brackets; rate cuts in certain brackets; increase In zero
bracket amounts.
Sec. 102. Personal exemptions increased to $1,000.
Sec. 103. Earned income credit made permanent.
Sec. 104. Increase in and simplification of the earned income tax credit.
Sec. 105. Advance payment of earned income credit.
Sec. 106. Application of certain changes in the case of fiscal year taxpayers.
Subtitle B—Itemized Deductions
Sec. 111. Repeal of nonbusiness deduction for State and local taxes on gasoline and
other motor fuels.
Sec. 112. Unemployment compensation.
Subtitle C—Credits
Sec. 121. Payments to related individuals under child care credit.
Subtitle D—Deferred Compensation
PART I—DEFERRED COMPENSATION PROVISIONS
Sec. 131. Deferred compensation plans with respect to service for State and local
governments.
Sec. 132. Certain private deferred compensation plans.
Sec. 133. Clarification of deductibility of payments of deferred compensation, etc., to
independent contractors.
Sec. 134. Tax treatment of cafeteria plans.
Sec. 135. Certain cash or deferred arrangements.
PART II—EMPLOYEE STOCK OWNERSHIP PLANS
Sec. 141. ESOPS.
Sec. 142. Certain lump sum distributions excluded from gross estate where recipi-
ent elects not to apply 10-year averaging.
Sec. 143. Qualified plans required to pass through voting rights on employer
securities.
92 STAT. 2764 PUBLIC LAW 95-600—NOV. 6, 1978
Subtitle E—Retirement Plans
Sec. 152. Simplified employee pensions.
Sec. 153. Defined benefit plan limits.
Sec. 154. Custodial accounts for regulated investment company stock.
Sec. 155. Pension plan reserves.
Sec. 156. Rollover of section 403(b) annuities permitted.
Sec. 157 Individual retirement account technical changes.
, Subtitle F—Other Individual Items
Sec. 161. Certain Government scholarship and award programs.
Sec. 162. Cancellation of student loans.
Sec. 163. Tax counseling for the elderly.
Sec. 164. Exclusion of value of certain educational assistance programs.
TITLE I I - T A X SHELTER PROVISIONS
Subtitle A—Provisions Related to At Risk Rules
Sec. 201. Extension of section 465 at risk rules to all activities other than real
estate.
Sec. 202. Extension of at risk provisions to closely held corporations. ^
Sec. 203. Recapture of losses where amount at risk is less than zero.
Sec. 204. Effective dates.
Subtitle B—Partnership Provisions
Sec. 211. Penalty for failure to file partnership return.
Sec. 212. Extension of statute of limitations in the case of partnership items.
TITLE III—PROVISIONS PRIMARILY AFFECTING BUSINESS INCOME TAX
Subtitle A—Corporate Rate Reductions
Sec. 301. Corporate rate reductions.
Subtitle B—Credits
Sec. 311. 10-percent investment tax credit and $100,000 limitation on used property
made permanent.
Sec. 312. Increase in limitation on investment credit to 90 percent of tax liability.
Sec. 313. Investment credit for pollution control facilities.
Sec. 314. Investment credit for certain single purpose agricultural or horticultural
structures.
Sec. 315. Investment credit allowed for certain rehabilitated buildings.
Sec. 316. Tax treatment of the investment credit in the case of cooperative organi-
zations.
Sec. 317. Transfers to ConRail not treated as dispositions for purposes of the invest-
ment credit.
Subtitle C—Targeted Jobs Credit; WIN Credit
Sec. 321. Targeted jobs credit.
Sec. 322. Work incentive program credit changes. . '
Subtitle D—Tax Exempt Bonds
PART I—INDUSTRIAL DEVELOPMENT BONDS
Sec. 331. Increase in limit on small issues of industrial development bonds.
Sec. 332. Local furnishing of electric energy. *
Sec. 333. Industrial development bonds for water facilities.
Sec. 334. Advance refunding of industrial development bonds for qualified public
facilities.
PART II—OTHER TAX-EXEMPT BOND PROVISIONS
Sec. 336. Declaratory judgment procedure for judicial review of determinations re-
lating to governmental obligations.
Sec. 337. Disposition of amounts generated by advance refunding of certain govern-
mental obligations.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2765
Subtitle E—Small Business Provisions
PART I—PROVISIONS REIATING TO SUBCHAPTER S
Sec. 341. Subchapter S corporations allowed 15 shareholders.
Sec. 342. Permitted shareholders of subchapter S corporations.
Sec. 343. Extension of period for making subchapter S elections.
Sec. 344. Effective date.
PART II—OTHER PROVISIONS J
Sec. 345. Small business corporation stock.
Subtitle F—Accounting Provisions
Sec. 351. Treatment of certain closely held farm corporations for purposes of rule
requiring accrual accounting.
Sec. 352. Accounting for growing crops.
Sec. 353. Treatment of certain farms for purposes of rule requiring accrual
accounting.
Subtitle G—Other Business Provisions
Sec. 361. Disallowance of certain deductions for yachts, hunting lodges, etc.
Sec. 362. Deficiency dividend procedure for regulated investment companies.
Sec. 363. Real estate investment trust provisions.
Sec. 364. Contributions in aid of construction.
Sec. 365. Liabilities of controlled corporations.
Sec. 366. Medical expense reimbursement plans.
Sec. 367. Three-year extension of provision for 60-month depreciation of expendi-
tures to rehabilitate low-income rental housing.
Sec. 368. Delay in application of new net operating loss rules.
Sec. 369. Use of certain expired net operating loss carryovers.
Sec. 370. Income from certain railroad rolling stock treated as income from sources
within the United States.
Sec. 371. Net operating losses attributable to product liability losses.
Sec. 372. Exclusion from gross income with respect to magazines, paperbacks, and
records returned after the close of the taxable year.
Sec. 373. Qualified discount coupons redeemed after close of taxable year.
TITLE IV—CAPITAL GAINS; MINIMUM TAX; MAXIMUM TAX
Subtitle A—Capital Gains
Sec. 401.
Repeal of alternative tax on capital gains of individuals.
Sec. 402.
Increased capital gains deductions for individuals.
Sec. 403.
Reduction of alternative capital gains tax for corporations.
Sec. 404.
One-time exclusion of gain from sale of principal residence by individual
who has attained age 55.
Sec. 405. Waiver of certain 18-month rules of section 1034 when sale of residence is
connected with commencing work at new place.
Subtitle B—Minimum Tax Provisions
Sec. 421. Alternative minimum tax for taxpayers other than corporations.
Sec. 422. Treatment of intangible drilling cost for purposes of the minimum tax.
Subtitle C—Maximum Tax Provisions
Sec. 441. Treatment of capital gains for purposes of the maximum tax.
Sec. 442. Determination of personal service income from nonsalaried trade or busi-
ness activities.
92 STAT. 2766 PUBLIC LAW 95-600—NOV. 6, 1978
TITLE V—OTHER TAX PROVISIONS
Subtitle A—Administrative Provisions
Sec. 501. Reporting requirements with respect to charged tips.
Sec. 502. Extension of optional small tax case procedures and expansion of
authority of commissioners of Tax Court.
Sec. 503. Disclosure of return information to certain Federal officers and employees
for purposes of tax administration, etc.
Sec. 504. Refund adjustments for amounts held under claim of right.
Subtitle B—Estate and Gift Tax Provisions
Sec. 511. Reduction of value taken into account for estate tax purposes where
spouse of decedent materially participated in farm or other business.
Sec. 512. Treatment of certain interests held by decedent's family for purposes of
the extension of time for payment of estate tax provided by section 6166.
Sec. 513. Subordination of special liens for additional estate tax attributable to
farm, etc., valuation.
Sec. 514. Amendment of governing instruments to meet requirements for gifts of
split interest to charity.
Sec. 515. Deferral of carryover basis rules.
Subtitle C—Other Excise Tax Provisions
Sec. 520. Reduction of administration tax on private foundations.
Sec. 521. Excise tax on certain gaming devices.
Sec. 522. Treatment of certain private foundations for purposes of section 4942.
Subtitle D—Income Tax Provisions
Sec. 530. Controversies involving whether individuals are employees for purposes of
the employment taxes.
Sec. 531. Certain original stockholders of cooperative housing corporations.
Subtitle E—Other Income Tax Provisions
Sec. 540. Deposits in certain branches of Puerto Rican savings and loan associa-
tions.
Sec. 541. Taxation of Alaska Native Claims Settlement Act corporations.
Sec. 542. Replacement of livestock with other farm property where there has been
environmental contamination.
Sec. 543. Certain payments not included in gross income.
Subtitle F—Studies
Sec. 551. Study of simplification of tax returns.
Sec. 552. Study of tax incentives for expenditures required by Occupational Safety
and Health Administration and Mining Health and Safety Adminis-
tration.
Sec. 553. Study of taxation of nonresident alien real estate transactions in the
United States.
Sec. 554. Report on effectiveness of jobs credit.
Sec. 555. Study of effects of changes in the tax treatment of capital gains on stimu-
lating investment and economic growth.
TITLE VI—GENERAL STOCK OWNERSHIP CORPORATIONS
Sec. 601. Establishment and taxation of general stock ownership corporations and
their shareholders.
TITLE VII—TECHNICAL CORRECTIONS OF THE TAX REFORM ACT OF 1976
Sec. 701. Technical amendments to income tax provisions and administrative
provisions.
Sec. 702. Technical, clerical, and conforming amendment to estate and gift tax
provisions.
Sec. 703. Corrections of punctuation, spelling, incorrect cross references, etc.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2767
TITLE VIII—AMENDMENTS RELATING TO SOCIAL SECURITY ACT
Sec. 801. Grants to States for social services.
Sec. 802. Change in public assistance matching formula, and increase in amount of
public assistance dollar limitations, for Puerto Rico, the Virgin Islands,
and Guam in fiscal year 1979.
SEC. 2. AMENDMENT OF 1954 CODE.
Except as otherwise expressly provided, whenever in this Act an
amendment or repeal is expressed in terms of an amendment to, or
repeal of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Internal
Revenue Code of 1954. 26 use l et seq.
SEC. 3. POLICY WITH RESPECT TO ADDITIONAL TAX REDUCTIONS.
As a matter of national policy the rate of growth in Federal outlays, 26 USC l note.
adjusted for inflation, should not exceed 1 percent per year between
fiscal year 1979 and fiscal year 1983; Federal outlays as a percentage
of gross national product should decline to below 21 percent in fiscal
year 1980, 20.5 percent in fiscal year 1981, 20 percent in fiscal year
1982 and 19.5 percent in fiscal year 1983; and the Federal budget
should be balanced in fiscal years 1982 and 1983. If these conditions
are met, it is the intention that the tax-writing committees of
Congress will report legislation providing significant tax reductions
for individuals to the extent that these tax reductions are justified in
the light of prevailing and expected economic conditions.
TITLE I—PROVISIONS PRIMARILY
AFFECTING INDIVIDUAL INCOME TAX
Subtitle A—Tax Reductions and Extensions
SEC. 101. WIDENING OF BRACKETS; RATE CUTS IN CERTAIN BRACKETS;
INCREASE IN ZERO BRACKET AMOUNTS.
(a) RATE REDUCTION.—Section 1 (relating to tax imposed) is 26 USC l.
amended to read as follows:
"SECTION 1. TAX IMPOSED.
"(a) MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING
SPOUSES.—There is hereby imposed on the taxable income of—
"(1) every married individual (as defined in section 143) who
makes a single return jointly with his spouse under section 6013,
and
"(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table:
"If taxable income is: The tax is:
Not over $3,400 No Tax.
Over $3,400 but not over $5,500 14% of excess over $3,400.
Over $5,500 but not over $7,600 $294, plus 16% of excess over $5,500.
Over $7,600 but not over $11,900 $630, plus 18% of excess over $7,600.
Over $11,900 but not over $16,000 $1,404, plus 21% of excess over $11,900.
Over $16,000 but not over $20,200 $2,265, plus 24% of excess over $16,000.
Over $20,200 but not over $24,600 $3,273, plus 28% of excess over $20,200.
Over $24,600 but not over $29,900 $4,505, plus 32% of excess over $24,600.
Over $29,900 but not over $35,200 $6,201, plus 37% of excess over $29,900.
Over $35,200 but not over $45,800 $8,162, plus 43% of excess over $35,200.
Over $45,800 but not over $60,000 $12,720, plus 49% of excess over
$45,800.
92 STAT. 2768 PUBLIC LAW 95-600—NOV. 6, 1978
"If taxable income is: The tax is:
Over $60,000 but not over $85,600 $19,678, plus 54% of excess over
$60,000.
Over $85,600 but not over $109,400 $33,502, plus 59% of excess over
$85,600.
Over $109,400 but not over $162,400. $47,544, plus 64% of excess over
$109,400.
Over $162,400 but not over $215,400. $81,464, plus 68% of excess over
$162,400.
Over $215,400 $117,504, plus 70% of excess over
$215,400.
"(b) HEADS OF HOUSEHOLDS.—There is hereby imposed on the
taxable income of every individual who is the head of a household (as
defined in section 2(b)) a tax determined in accordance with the
following table:
"If taxable income is: The tax is:
Not over $2,300 No tax.
Over $2,300 but not over $4,400 14% of excess over $2,300.
Over $4,400 but not over $6,500 $294, plus 16% of excess over $4,400.
Over $6,500 but not over $8,700 $630, plus 18% of excess over $6,500.
Over $8,700 but not over $11,800 $1,026, plus 22% of excess over $8,700
Over $11,800 but not over $15,000$1,708, plus 24% of excess over $11,800
Over $15,000 but not over $18,200$2,476, plus 26% of excess over $15,000
Over $18,200 but not over $23,500$3,308, plus 31% of excess over $18,200,
Over $23,500 but not over $28,800$4,951, plus 36% of excess over $23,500,
Over $28,800 but not over $34,100$6,859, plus 42% of excess over $28,800
Over $34,100 but not over $44,700$9,085, plus 46% of excess over $34,100,
Over $44,700 but not over $60,600$13,961, plus 54% of excess over
$44,700.
Over $60,600 but not over $81,800 $22,547, plus 59% of excess over
$60,600.
Over $81,800 but not over $108,300 $35,055, plus 63% of excess over
$81,800.
Over $108,300 but not over $161,300. $51,750, plus 68% of excess over
$108,300.
Over $161,300 $87,790, plus 70% of excess over
$161,300.
"(c) UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES
AND HEADS OF HOUSEHOLDS).—There is hereby imposed on the tax-
able income of every individual (other than a surviving spouse as
defined in section 2(a) or the head of a household as defined in section
2(b)) who is not a married individual (as defined in section 143) a tax
determined in accordance with the following table:
"If taxable income is: The tax is:
Not over $2,300 No tax.
Over $2,300 but not over $3,400 14% of excess over $2,300.
Over $3,400 but not over $4,400 $154, plus 16% of excess over $3,400.
Over $4,400 but not over $6,500 $314, plus 18% of excess over $4,400.
Over $6,500 but not over $8,500 $692, plus 19% of excess over $6,500.
Over $8,500 but not over $10,800 $1,072, plus 21% of excess over $8,500
Over $10,800 but not over $12,900 $1,555, plus 24% of excess over $10,800
Over $12,900 but not over $15,000 $2,059, plus 26% of excess over $12,900
Over $15,000 but not over $18,200 $2,605, plus 30% of excess over $15,000
Over $18,200 but not over $23,500 $3,565, plus 34% of excess over $18,200
Over $23,500 but not over $28,800 $5,367, plus 39% of excess over $23,500
Over $28,800 but not over $34,100 $7,434, plus 44% of excess over $28,800
Over $34,100 but not over $41,500 $9,766, plus 49% of excess over $34,100
Over $41,500 but not over $55,300 $13,392, plus 55% of excess over
$41,500.
Over $55,300 but not over $81,800 $20,982, plus 63% of excess over
$55,300.
Over $81,800 but not over $108,300 $37,677, plus 68% of excess over
$81,800.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2769
"If taxable income is: The tax is:
Over $108,300 $55,697, plus 70% of excess over
$108,300.
"(d) MARRIED INDIVIDUALS FILING SEPARATE RETURNS.—There is
hereby imposed on the taxable income of every married individual (as
defined in section 143) who does not make a single return jointly with
his spouse under section 6013 a tax determined in accordance with
the following table:
"If taxable income is: The tax is:
Not over $1,700 No tax.
Over $1,700 but not over $2,750 14% of excess over $1,700.
Over $2,750 but not over $3,800 $147, plus 16% of excess over $2,750.
Over $3,800 but not over $5,950 $315, plus 18% of excess over $3,800.
Over $5,950 but not over $8,000 $702, plus 21% of excess over $5,950.
Over $8,000 but not over $10,100 $1,132.50, plus 24% of excess over
$8,000.
Over $10,100 but not over $12,300 $1,636.50, plus 28% of excess over
$10,100.
Over $12,300 but not over $14,950 $2,252.50, plus 32% of excess over
$12,300.
Over $14,950 but not over $17,600 $3,100.50, plus 37% of excess over
$14,950.
Over $17,600 but not over $22,900 $4,081, plus 43% of excess over $17,600.
Over $22,900 but not over $30,000 $6,360, plus 49% of excess over $22,900.
Over $30,000 but not over $42,800 $9,839, plus 54% of excess over $30,000.
Over $42,800 but not over $54,700 $16,751, plus 59% of excess over
$42,800.
Over $54,700 but not over $81,200 $23,772, plus 64% of excess over
$54,700.
Over $81,200 but not over $107,700 $40,732, plus 68% of excess over
$81,200.
Over $107,700 $58,752, plus 70% of excess over
$107,700.
"(e) ESTATES AND TRUSTS.—There is hereby imposed on the taxable
income of every estate and trust taxable under this subsection a tax
determined in accordance with the following table:
"If taxable income is: The tax is:
Not over $1,050 14% of taxable income.
Over $1,050 but not over $2,100 $147, plus 16% of excess over $1,050.
Over $2,100 but not over $4,250 $315, plus 18% of excess over $2,100.
Over $4,250 but not over $6,300 $702, plus 21% of excess over $4,250.
Over $6,300 but not over $8,400 $1,132.50 plus 24% of excess over
$6,300.
Over $8,400 but not over $10,600 $1,636.50, plus 28% of excess over
$8,400.
Over $10,600 but not over $13,250 $2,252.50, plus 32% of excess over
$10,600.
Over $13,250 but not over $15,900 $3,100.50, plus 37% of excess over
$13,250.
Over $15,900 but not over $21,200 $4,081, plus 43% of excess over $15,900.
Over $21,200 but not over $28,300 $6,360, plus 49% of excess over $21,200.
Over $28,300 but not over $41,100 $9,839, plus 54% of excess over $28,300.
Over $41,100 but not over $53,000 $16,751, plus 59% of excess over
$41,100.
Over $53,000 but not over $79,500 $23,772, plus 64% of excess over
$53,000.
Over $79,500 but not over $106,000 $40,732, plus 68% of excess over
$79,500.
Over $106,000 $58,752, plus 70% of excess over
$106,000.".
(b) INCREASE IN ZERO BRACKET AMOUNT.—Subsection (d) of section 26 u s e 63.
63 (defining zero bracket amount) is amended—
(1) by striking out "$3,200" and inserting in lieu thereof
"$3,400",
\
92 STAT. 2770 PUBLIC LAW 95-600—NOV. 6, 1978
(2) by striking out "$2,200" and inserting in lieu thereof
"$2,300", and
(3) by striking out "$1,600" and inserting in lieu thereof
"$1,700".
26 use 6012. (c) FILING REQUIREMENTS.—Paragraph (1) of section 6012(a) (relat-
ing to persons required to make returns of income) is amended—
(1) by striking out "$2,950" and inserting in lieu thereof
"$3,050",
(2) by striking out "$3,950" and inserting in lieu thereof
"$4,150", and
(3) by striking out "$4,700" and inserting in lieu thereof
"$4,900".
(d) TECHNICAL AMENDMENTS.—
26 use 402. (1) Subparagraph (C) of section 402(e)(1) (relating to tax on
lump sum distributions) is amended by striking out "$2,200" and
inserting in lieu thereof "$2,300".
26 use 1302. (2) Paragraph (3) of section 1302(b) (relating to transitional rule
for determining base period income) is amended to read as
follows:
"(3) TRANSITIONAL RULE FOR DETERMINING BASE PERIOD
INCOME.—The base period income (determined under paragraph
(2)) for any taxable year beginning before January 1, 1977, shall
be increased by—
"(A) $3,200 in the case of a joint return or a surviving
26 use 2. spouse (as defined in section 2(a)),
"(B) $2,200 in the case of an individual who is not married
(within the meaning of section 143) and is not a surviving
spouse (as so defined), or
"(C) $1,600 in the case of a married individual (within the
26 use 143. meaning of section 143) filing a separate return.
For purposes of this paragraph, filing status shall be determined
as of the computation year."
(e) WITHHOLDING AMENDMENTS.—
26 use 3402. (1) WITHHOLDING TABLES.—Subsection (a) of section 3402 (relat-
ing to requirement of withholding) is amended by striking out
the second and third sentences and inserting in lieu thereof the
following new sentence: "With respect to wages paid after
December 31,1978, the tables so prescribed shall be the same as
the tables prescribed under this subsection which were in effect
on January 1, 1975, except that such tables shall be modified to
the extent necessary to reflect the amendments made by sections
91 Stat. 127, 101 and 102 of the Tax Reduction and Simplification Act of 1977
^^^- and the amendments made by section 101 of the Revenue Act of
Ante, p. 2767. 1978.".
(2) WITHHOLDING ALLOWANCES BASED ON ITEMIZED DEDUC-
TIONS.—Subparagraph (B) of section 3402(m)(l) (relating to with-
holding allowances based on itemized deductions) is amended—
(A) by striking out "$3,200" and inserting in lieu thereof
"$3,400", and
(B) by striking out "$2,200" and inserting in lieu thereof
"$2,300".
(£) EFFECTIVE DATES.—
26 use 1 note. (1) I N GENERAL.—The amendments made by subsections (a), (b),
(c), and (d) shall apply to taxable years beginning after Decem-
ber 31,1978.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2771
(2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402
subsection (e) shall apply to remuneration paid after Decem- "o*^-
ber 31,1978.
SEC. 102. PERSONAL EXEMPTIONS INCREASED TO $1,000.
(a) GENERAL RULE.—Section 151 (relating to allowance of deduc- 26 USC 151.
tions for personal exemptions) is amended by striking out "$750"
each place it appears and inserting in lieu thereof "$1,000".
(b) FILING REQUIREMENTS.—
(1) Paragraph (1) of section 6012(a) (relating to persons 26 USC 6012.
required to make returns of income) as amended by section 101(c)
of this Act, is amended by striking out "$750", "$3,050", "$4,150",
and "$4,900" each place they appear and inserting in lieu thereof
"$1,000", "$3,300", "$4,400", and "$5,400", respectively.
(2) Subparagraph (A) of section 6013(b)(3) (relating to assess- 26 USC 6013.
ment and collection in the case of certain returns of husband and
wife) is amended by striking out "$750" and "$1,500" each place
they appear and inserting in lieu thereof "$1,000" and "$2,000",
respectively.
(c) WITHHOLDING REQUIREMENTS.—
(1) Paragraph (1) of section 3402(b) (relating to percentage 26 USC 3402.
method of withholding income tax at source) is amended by
striking out the table and inserting in lieu thereof the following:
"Percentage Method Withholding Table
Amount of one
"Payroll period withholding
exemption
Weekly $19.23
Biweekly 38.46
Semimonthly 41.66
Monthly 83.33
Quarterly 250.00
Semiannual 500.00
Annual 1,000.00
Daily or miscellaneous (per day of such period) 2.74"
(2) Paragraph (1) of section 3402(m) (relating to withholding
allowances based on itemized deductions) is amended by striking
out "$750" and inserting in lieu thereof "$1,000".
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by subsections (a) and 26 USC 151
(b) shall apply to taxable years beginning after December 31, "ote.
1978.
(2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402
subsection (c) shall apply with respect to remuneration paid after °°t®-
December 31,1978.
SEC. 103. EARNED INCOME CREDIT MADE PERMANENT.
(a) GENERAL RULE.—Subsection (b) of section 209 of the Tax
Reduction Act of 1975 is amended by striking out ", and before 26 USC 43 noti;
January 1,1979".
(b) TECHNICAL AMENDMENT.—The second sentence of section 401(e)
of the Tax Reform Act of 1976 (as added by section 103 of the Tax 26 USC 42 note
Reduction and Simplification Act of 1977) is amended by striking out
**, and shall cease to apply to taxable years beginning after Decem-
ber 31,1978".
92 STAT. 2772 PUBLIC LAW 95-600—NOV. 6, 1978
SEC. 104. INCREASE IN AND SIMPLIFICATION OF THE EARNED INCOME
TAX CREDIT.
26 use 43. (a) INCREASE IN CREDIT.—Subsection (a) of section 43 (relating to
earned income credit) is amended—
(1) by striking out "chapter" and inserting in lieu thereof
"subtitle", and
(2) by striking out "$4,000" and inserting in lieu thereof
"$5,000".
(b) REVISION OF THE LIMITATION.—Subsection Ob) of section 43 is
amended to read as follows:
"(b) LIMITATION.—The amount of the credit allowable to a taxpayer
under subsection (a) for any taxable year shall not exceed the excess
(if any) of—
"(1) $500, over
"(2) 12.5 percent of so much of the adjusted gross income (or, if
greater, the earned income) of the taxpayer for the taxable year
as exceeds $6,000.".
(c) AMOUNT OF CREDIT TO B E DETERMINED UNDER TABLES.-=-Section
43 is amended by adding at the end thereof the following new
subsection:
"(f) AMOUNT OF CREDIT TO B E DETERMINED UNDER TABLES,—
"(1) I N GENERAL.—The amount of the credit allowed by this
section shall be determined under tables prescribed by the
Secretary.
"(2) REQUIREMENTS FOR TABLES.—The tables prescribed under
paragraph (1) shall reflect the provisions of subsections (a) and (b)
and shall have income brackets of not greater than $50 each—
"(A) for earned income between $0 and $10,000, and
"(B) for adjusted gross income between $6,000 and
$10,000.".
(d) EXCLUDABLE EARNED INCOME TAKEN INTO ACCOUNT.—Subpara-
graph (B) of section 43(c)(2) (defining earned income) is amended by
striking out clause (i) and by redesignating clauses (ii), (iii), and (iv) as
clauses (i), (ii), and (iii), respectively.
(e) DEFINITION OF ELIGIBLE INDIVIDUAL.—Paragraph (1) of section
43(c) (defining eligible individual) is amended to read as follows:
"(1) ELIGIBLE INDIVIDUAL.—
"(A) IN GENERAL.—The term 'eligible individual' means an
individual who, for the taxable year—
26 use 143. "(i) is married (within the meaning of section 143) and
26 use 151. is entitled to a deduction under section 151 for a child
(within the meaning of section 151(e)(3)),
"(ii) is a surviving spouse (as determined under section
26 use 2. 2(a)), or
"(iii) is a head of a household (as determined under
subsection (b) of section 2 without regard to subpara-
graphs (A)(ii) and (B) of paragraph (1) of such subsec-
tion).
"(B) CHILD MUST RESIDE WITH TAXPAYER IN THE UNITED
. ., STATES.—An individual shall be treated as satisfying clause
(i) of subparagraph (A) only if the child has the same
principal place of abode as the individual and such abode is
. ^ in the United States. An individual shall be treated as
satisfying clause (ii) or (iii) of subparagraph (A) only if the
household in question is in the United States.
"(C) INDIVIDUAL ENTITLED TO EXCLUDE INCOME UNDER SEC-
26 use 911. TION 911 NOT ELIGIBLE INDIVIDUAL.—The term 'eligible indi-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2773
vidual' does not include an individual who, for the taxable
year, is entitled to exclude any amount from gross income
under section 911 (relating to earned income from sources 26 USC 911.
without the United States) or section 931 (relating to income 26 USC 931.
from sources within the possessions of the United States).",
(f) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 43 notei.
apply to taxable years beginning after December 31,1978.
SEC. 105. ADVANCE PAYMENT OF EARNED INCOME CREDIT.
(a) COORDINATION OF CREDIT WITH ADVANCE PAYMENTS.—Section
43 (relating to earned income credit) is amended by adding at the end 26 USC 43.
thereof the following new subsection:
"(h) COORDINATION WITH ADVANCE PAYMENTS OF EARNED INCOME
CREDIT.—
"(1) RECAPTURE OF EXCESS ADVANCE PAYMENTS.—If any pay-
ment is made to the individual by an employer under section
3507 during any calendar year, then the tax imposed by this ^"/ra-
chapter for the individual's last taxable year beginning in such
calendar year shall be increased by the aggregate amount of such
payments.
"(2) RECONCIUATION OF PAYMENTS ADVANCED AND CREDIT
ALLOWED.—Any increase in tax under paragraph (1) shall not be
treated as tax imposed by this chapter for purposes of determin-
ing the amount of any credit (other than the credit allowed by
subsection (a)) allowable under this subpart.''.
(b) ADVANCE PAYMENT OF EARNED INCOME CREDIT.—
(1) I N GENERAL.—Chapter 25 (general provisions relating to
employment taxes) is amended by adding at the end thereof the
following new section:
"SEC. 3507. ADVANCE PAYMENT OF EARNED INCOME CREDIT. 26 USC 3507.
"(a) GENERAL RULE.—Except as otherwise provided in this section,
every employer making payment of wages to an employee with
respect to whom an earned income eligibility certificate is in effect
shall, at the time of paying such wages, make an additional payment
to such employee equal to such employee's earned income advance
amount.
"(b) EARNED INCOME ELIGIBILITY CERTIFICATE.—For purposes of this
title, an earned income eligibility certificate is a statement furnished
by an employee to the employer which—
"(1) certifies that the employee will be eligible to receive the
credit provided by section 43 for the taxable year,
"(2) certifies that the employee does not have an earned income
eligibility certificate in effect for the calendar year with respect
to the payment of wages by another employer, and
"(3) states whether or not the employee's spouse has an earned
income eligibility certificate in effect.
For purposes of this section, a certificate shall be treated as being in
effect with respect to a spouse if such a certificate will be in effect on
the first status determination date following the date on which the
employee furnishes the statement in question.
' '(c) EARNED INCOME ADVANCE AMOUNT.—
"(1) IN GENERAL.—For purposes of this title, the term 'earned
income advance amount means, with respect to any payroll
period, the amount determined—
"(A) on the basis of the employee's wages from the
employer for such period, and
"(B) in accordance with tables prescribed by the Secretary.
92 STAT. 2774 PUBLIC LAW 95-600—NOV. 6, 1978
"(2) ADVANCE AMOUNT TABLES.—The tables referred to in
paragraph (1)(B)—
"(A) shall be similar in form to the tables prescribed under
26 use 3402. section 3402 and, to the maximum extent feasible, shall be
coordinated with such tables, and
"(B) if the employee is not married, or if no earned income
eligibility certificate is in effect with respect to the spouse of
Ante, pp. 2772, the employee, shall treat the credit provided by section 43 as
2773. if it were a credit—
"(i) of not more than 10 percent of the first $5,000 of
earned income, which
"(ii) phases out between $6,000 and $10,000 of earned
income, or
"(C) if an earned income eligibility certificate is in effect
with respect to the spouse of the employee, shall treat the
credit provided by section 43 as if it were a credit—
"(i) of not more than 10 percent of the first $2,500 of
earned income, which
"(ii) phases out between $3,000 and $5,000 of earned
income.
"(d) PAYMENTS TO B E TREATED AS PAYMENTS OF WITHHOLDING AND
FICA TAXES.—
"(1) IN GENERAL.—For purposes of this title, payments made by
an employer under subsection (a) to his employees for any payroll
period—
"(A) shall not be treated as the payment of compensation,
and
"(B) shall be treated as made out of—
"(i) amounts required to be deducted and withheld for
26 use 3401. the payroll period under section 3401 (relating to wage
withholding), and
"(ii) amounts required to be deducted for the payroll
26 use 3102. period under section 3102 (relating to FICA employee
taxes), and
"(iii) amounts of the taxes imposed for the payroll
26 use 3111. period under section 3111 (relating to FICA employer
taxes),
as if the employer had paid to the Secretary, on the day on
which the wages are paid to the employees, an amount equal
to such payments.
"(2) ADVANCE PAYMENTS EXCEED TAXES DUE.—In the case of any
employer, if for any payroll period the aggregate amount of
earned income advance payments exceeds the sum of the
amounts referred to in paragraph (1)(B), each such advance
payment shall be reduced by an amount which bears the same
ratio to such excess as such advance payment bears to the
aggregate amount of all such advance payments.
"(3) EMPLOYER MAY MAKE FULL ADVANCE PAYMENTS.—The Sec-
retary shall prescribe regulations under which an employer may
elect (in lieu of any application of paragraph (2))—
"(A) to pay in full all earned income advance amounts, and
"(B) to have additional amounts paid by reason of this
paragraph treated as the advance payment of taxes imposed
by this title.
"(4) FAILURE TO MAKE ADVANCE PAYMENTS.—For purposes of
this title (including penalties), failure to make any advance
payment under this section at the time provided therefor shall be
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2775
treated as the failure at such time to deduct and withhold under
chapter 24 an amount equal to the amount of such advance 26 use 3401 et
pa5nnent. ^^9
"(e) FURNISHING AND TAKING EFFECT OF CERTIFICATES.—For pur-
poses of this section—
"(1) WHEN CERTIFICATE TAKES EFFECT.—
"(A) FIRST CERTIFICATE FURNISHED.—An earned income
eligibility certificate furnished the employer in cases in
which no previous such certificate had been in effect for the
calendar year shall take effect as of the beginning of the first
payroll period ending, or the first payment of wages made
without regard to a payroll period, on or after the date on
which such certificate is so furnished (or if later, the first day
of the calendar year for which furnished).
"(B) LATER CERTIFICATE.—An earned income eligibility
certificate furnished the employer in cases in which a
previous such certificate had been in effect for the calendar
year shall take effect with respect to the first pa5nnent of
wages made on or after the first status determination date
which occurs at least 30 days after the date on which such
certificate is so furnished, except that at the election of the
employer such certificate may be made effective with respect .
to any payment of wages made on or after the date on which
such certificate is so furnished. For purposes of this section,
the term 'status determination date' means January 1,
May 1, July 1, and October 1 of each year.
"(2) PERIOD DURING WHICH CERTIFICATE REMAINS IN EFFECT.—
An earned income eligibility certificate which takes effect under
this section for any calendar year shall continue in effect with
respect to the employee during such calendar year until revoked
by the employee or until another such certificate takes effect
under this section.
"(3) CHANGE OF STATUS.—
"(A) REQUIREMENT TO REVOKE OR FURNISH NEW CERTIFI-
CATE.—If, after an employee has furnished an earned income
eligibility certificate under this section, there has been a
change of circumstances which has the effect of—
"(i) making the employee ineligible for the credit
provided by section 43 for the taxable year, or ^me, pp. 2772,
"(ii) causing an earned income eligibility certificate to '^'^'^^•
be in effect with respect to the spouse of the employee,
the employee shall, within 10 days after such change in
circumstances, furnish the employer with a revocation of
such certificate or with a new certificate (as the case may be).
Such a revocation (or such a new certificate) shall take effect
under the rules provided by paragraph (1)(B) for a later
certificate and shall be made in such form as the Secretary
shall by regulations prescribe.
"(B) CERTIFICATE NO LONGER IN EFFECT.—If, after an
employee has furnished an earned income eligibility certifi-
cate under this section which certifies that such a certificate
is in effect with respect to the spouse of the employee, such a
certificate is no longer in effect with respect to such spouse,
then the employee may furnish the employer with a new
earned income eligibility certificate.
92 STAT. 2776 PUBLIC LAW 95-600—NOV. 6, 1978
"(4) FORM AND CONTENTS OF CERTIFICATE.—Earned income
eligibility certificates shall be in such form and contain such
other information as the Secretary may by regulations prescribe.
"(5) TAXABLE YEAR DEFINED.—The term 'taxable year' means
the last taxable year of the employee under subtitle A beginning
in the calendar year in which the wages are paid.".
(2) CLERICAL AMENDMENT.—The table of sections for chapter 25
is amended by adding at the end thereof the following new item:
"Sec. 3507. Advance payment of earned income credit.".
(c) INFORMATION SHOWN ON W-2.—The first sentence of section
26 use 6051. 6051 (a) (relating to receipts for employees) is amended—
(1) by striking out "and" at the end of paragraph (5),
(2) by striking out the period at the end of paragraph (6) and
inserting in lieu thereof ", and", and
(3) by adding at the end thereof the following new paragraph:
"(7) the total amount paid to the employee under section 3507
(relating to advance payment of earned income credit).".
26 use 6012. (d) REQUIREMENT OF RETURN.—Subsection (a) of section 6012 (relat-
ing to persons required to make returns of income) is amended by
adding at the end thereof the following new paragraph:
"(8) Every individual who receives payments during the calen-
Ante, p. 2773. dar year in which the taxable year begins under section 3507
(relating to advance payment of earned income credit).".
26 use 6302. (e) CROSS REFERENCE.—Section 6302 (relating to mode or time of
collection) is amended by adding at the end thereof the following new
subsection:
"(d) CROSS REFERENCE.—
"For treatment of payment of earned income advance amounts as pay-
ment of withholding and FICA taxes, see section 3507(d).".
(f) DISREGARD TO TERMINATE IN 1980.—Section 2(d) of the Revenue
26 use 43 note. Adjustment Act of 1975 (relating to disregard of refund) is amended—
(1) by inserting before "shall not be taken into account" the
following: ", and any payment made by an employer under
26 use 3507. section 3507 of such Code (relating to advance payment of earned
income credit)", and
(2) by inserting after "shall not be taken into account" the
following: "in any year ending before 1980".
(g) EFFECTIVE DATE.—
26 use 43 note. (1) The amendments made by subsections (a) and (d) shall apply
to taxable years beginning after December 31,1978.
26 use 3507 (2) The amendments made by subsections (b), (c), and (e) shall
"o*^- apply to remuneration paid after June 30,1978.
26 use 43 note. (3) Subsection (f) shall take effect on the date of the enactment
of this Act.
SEC. 106. APPLICATION OF CERTAIN CHANGES IN THE CASE OF FISCAL
YEAR TAXPAYERS.
26 use 21. Section 21 (relating to effects of changes in rate of tax) is amended
by adding at the end thereof the following new subsection:
"(D CHANGES MADE BY REVENUE ACT OF 1978.—In applying subsec-
tion (a) to a taxable year which is not a calendar year—
Ante, pp. 2767, "(1) the amendments made by sections 101,102, and 301 of the
2771; Post, p. Revenue Act of 1978 (and no other amendments made by such
2820. Act), and
26 use 42. "(2) the expiration of section 42 (relating to general tax credit),
shall be treated as a change in a rate of tax.".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2777
Subtitle B—Itemized Deductions; Etc.
SEC. 111. REPEAL OF DEDUCTION FOR STATE AND LOCAL TAXES ON
GASOLINE AND OTHER MOTOR FUELS.
(a) REPEAL.—Paragraph (5) of section 164(a) (relating to deduction 26 u s e 164.
for taxes) is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) The heading of paragraph (5) of section 164(b) is amended by
striking out "AND GASOLINE TAXES".
(2) The text of such paragraph (5) is amended by striking out
"or of any tax on the sale of gasoline, diesel fuel, or other motor
fuel".
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 164
apply to taxable years beginning after December 31,1978. "o*^-
SEC. 112. TAXATION OF UNEMPLOYMENT COMPENSATION BENEFITS AT
CERTAIN INCOME LEVELS.
(a) INCLUSION IN GROSS INCOME.—Part II of subchapter B of chapter
1 (relating to amounts specifically included in gross income) is 26 use 71.
amended by adding at the end thereof the following new section:
"SEC. 85. UNEMPLOYMENT COMPENSATION. 26 USe 85.
"(a) I N GENERAL.—If the sum for the taxable year of the adjusted
gross income of the taxpayer (determined without regard to this
section and without regard to section 105(d)) and the unemployment 26 u s e 105.
compensation exceeds the base amount, gross income for the taxable
year includes unemployment compensation in an amount equal to
the lesser of—
"(1) one-half of the amount of the excess of such sum over the
base amount, or
"(2) the amount of the unemployment compensation.
"(b) BASE AMOUNT DEFINED,—For purposes of this section, the term
'base amount'means—
"(1) except as provided in paragraphs (2) and (3), $20,000,
"(2) $25,000, in the case of a joint return under section 6013, or 26 use 6013.
"(3) zero, in the case of a taxpayer who—
"(A) is married at the close of the taxable year (within the
meaning of section 143) but does not file a joint return for 26 USe 143.
such year, and
"(B) does not live apart from his spouse at all times during
the taxable year.
"(c) UNEMPLOYMENT COMPENSATION DEFINED.—For purposes of this
section, the term 'unemployment compensation' means any amount
received under a law of the United States or of a State which is in the
nature of unemployment compensation.".
(b) REPORTING OF UNEMPLOYMENT COMPENSATION PAYMENTS.—
Subpart B of part III of subchapter A of chapter 61 (relating to
information concerning transactions with other persons) is amended
by adding at the end thereof the following new section:
"SEC. 6050B. RETURNS RELATING TO UNEMPLOYMENT COMPENSATION. 26 USC 6050B.
"(a) REQUIREMENT OF REPORTING.—Every person who makes pay-
ments of unemployment compensation aggregating $10 or more to
any individual during any calendar year shall make a return accord-
ing to the forms or regulations prescribed by the Secretary, setting
forth the aggregate amounts of such payments and the name and
address of the individual to whom paid.
39-194 O—80—pt. 3 10 : QL3
92 STAT. 2778 PUBLIC LAW 95-600—NOV. 6, 1978
"(b) STATEMENTS T O B E FURNISHED TO INDIVIDUALS WITH RESPECT
TO WHOM INFORMATION IS FURNISHED.—Every person making a
return under subsection (a) shall furnish to each individual whose
name is set forth in such return a written statement showing—
"(1) the name and address of the person making such return,
and
"(2) the aggregate amount of payments to the individual as
shown on such return.
The written statement required under the preceding sentence shall
be furnished to the individual on or before January 31 of the year
following the calendar year for which the return under subsection (a)
was made. No statement shall be required to be furnished to any
individual under this subsection if the aggregate amount of payments
to such individual shown on the return made under subsection (a) is
less than $10.
"(c) DEFINITIONS.—For purposes of this section—
"(1) UNEMPLOYMENT COMPENSATION.—The term 'unemploy-
ment compensation' has the meaning given to such term by
26 use 85. section 85(c).
"(2) PERSON.—The term 'person' means the officer or employee
having control of the payment of the unemployment compensa-
tion, or the person appropriately designated for purposes of this
section."
(c) CLERICAL AMENDMENTS.—
(1) The table of sections for part II of subchapter B of chapter 1
is amended by adding at the end thereof the following new item:
"Sec. 85. Unemployment compensation."
(2) The table of sections for subpart B of part III of subchapter
A of chapter 61 is amended by adding at the end thereof the
following new item:
"Sec. 6050B. Returns relating to unemployment compensation.".
26 use 85 note. (d) EFFECTIVE DATE.—The amendments made by this section shall
apply to payments of unemployment compensation made after
December 31,1978, in taxable years ending after such date.
SEC. 113. REPEAL OF DEDUCTION FOR POLITICAL CONTRIBUTIONS;
INCREASE IN CREDIT.
(a) REPEAL OF DEDUCTION.—
26 use 218. (1) REPEAL.—Section 218 (relating to deduction for contribu-
tions to candidates for public office and newsletter funds) is
hereby repealed.
(2) CONFORMING AMENDMENTS.—
(A) The table of sections for part VII of subchapter B of
chapter 1 (relating to additional itemized deductions for
individuals) is amended by striking out the item relating to
section 218.
26 use 642. (B) Section 642 (relating to special rules for credits and
deductions of estates and trusts) is amended by striking out
subsection (i) and by redesignating subsections (j) and (k) as
subsections (i) and (j), respectively.
26 use 41. (c) INCREASE IN AMOUNT OF CREDIT.—Paragraph (1) of section 41(b)
(relating to maximum credit) is amended by striking out "$25" and
"$50" and inserting in lieu thereof "$50" and "$100", respectively.
26 use 41 note. (d) EFFECTIVE DATE.—The amendments made by this section shall
apply with respect to contributions the payment of which is made
after December 31,1978, in taxable years beginning after such date.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2779
Subtitle C—Credits
SEC. 121. PAYMENTS TO RELATED INDIVIDUALS UNDER CHILD CARE
CREDIT.
(a) I N GENERAL.—Paragraph (6) of section 44A(f) (relating to pay- 26 use 44A.
ments to related individuals) is amended to read as follows:
"(6) PAYMENTS TO RELATED INDIVIDUALS.—No credit shall be
allowed under subsection (a) for any amount paid by the tax-
payer to an individual—
"(A) with respect to whom, for the taxable year, a deduc-
tion under section 151(e) (relating to deduction for personal 26 use 151.
exemptions for dependents) is allowable either to the tax-
payer or his spouse, or
"(B) who is a child of the taxpayer (within the meaning of
section 151(e)(3)) who has not attained the age of 19 at the
close of the taxable year.
For purposes of this paragraph, the term 'taxable year' means "Taxable year.
the taxable year of the taxpayer in which the service is
performed."
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 u s e 44A
apply to taxable years beginning after December 31,1978. note.
Subtitle D—Deferred Compensation
PART I—DEFERRED COMPENSATION PROVISIONS
SEC. 131. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE 26 u s e 457.
FOR STATE AND LOCAL GOVERNMENTS.
(a) IN GENERAL.—Subpart B of part II of subchapter E of chapter 1
(relating to taxable years for which gross income included) is
amended by adding at the end thereof the following new section:
"SEC. 457. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERV-
ICE FOR STATE AND LOCAL GOVERNMENTS.
"(a) YEAR OF INCLUSION IN GROSS INCOME.—In the case of a
participant in an eligible State deferred compensation plan, any
amount of compensation deferred under the plan, and any income
attributable to the amounts so deferred, shall be includible in gross
income only for the taxable year in which such compensation or other
income is paid or otherwise made available to the participant or other
beneficiary.
"(b) ELIGIBLE STATE DEFERRED COMPENSATION PLAN DEFINED.—For
purposes of this section, the term 'eligible State deferred compensa-
tion plan' means a plan established and maintained by a State—
"(1) in which only individuals who perform service for the
State may be participants,
"(2) which provides that (except as provided in paragraph (3))
the maximum that may be deferred under the plan for the
taxable year shall not exceed the lesser of—
"(A) $7,500, or
"(B) 33 Va percent of the participant's includible
compensation,
"(3) which may provide that, for 1 or more of the participant's
last 3 taxable years ending before he attains normal retirement
age under the plan, the ceiling set forth in paragraph (2) shall be
the lesser of—
92 STAT. 2780 PUBLIC LAW 95-600—NOV. 6, 1978
i, "(A) $15,000, or
"(B) the sum of—
"(i) the plan ceiHng estabHshed for purposes of para-
graph (2) for the taxable year (determined without
regard to this paragraph), plus
"(ii) so much of the plan ceiling established for pur-
poses of paragraph (2) for taxable years before the
taxable year as has not theretofore been used under
paragraph (2) or this paragraph,
"(4) which provides that compensation will be deferred for any
calendar month only if an agreement providing for such deferral
has been entered into before the beginning of such month,
"(5) which does not provide that amounts payable under the
plan will be made available to participants or other beneficiaries
earlier than when the participant is separated from service with
the State or is faced with an unforeseeable emergency (deter-
mined in the manner prescribed by the Secretary by regulation),
and
"(6) which provides that—
"(A) all amounts of compensation deferred under the plan,
"(B) all property and rights purchased with such amounts,
and
"(C) all income attributable to such amounts, property, or
rights,
shall remain (until made available to the participant or other
beneficiary) solely the property and rights of the State (without
being restricted to the provision of benefits under the plan)
subject only to the claims of the State's general creditors.
A plan which is administered in a manner which is inconsistent with
the requirements of any of the preceding paragraphs shall be treated
as not meeting the requirements of such paragraph as of the first
plan year beginning more than 180 days after the date of notification
by the Secretary of the inconsistency unless the State corrects the
inconsistency before the first day of such plan year.
"(c) INDIVIDUALS WHO ARE PARTICIPANTS IN MORE THAN O N E
PLAN.—
"(1) IN GENERAL.—The maximum amount of the compensation
of any one individual which may be deferred under subsection (a)
during any taxable year shall not exceed $7,500 (as modified by
any adjustment provided under subsection (b)(3)).
26 use 403. "(2) COORDINATION WITH SECTION 403(b).—In applying para-
graph (1) of this subsection and paragraphs (2) and (3) of subsec-
tion (b), an amount excluded during a taxable year under section
403(b) shall be treated as an amount deferred under subsection
(a). In applying clause (ii) of section 403(b)(2)(A), an amount
deferred under subsection (a) for any year of service shall be
taken into account as if described in such clause.
"(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
"(1) STATE.—The term 'State' means a State, a political subdi-
vision of a State, and an agency or instrumentality of a State or
political subdivision of a State.
"(2) PERFORMANCE OF SERVICE.—The performance of service
includes performance of service as an independent contractor.
"(3) PARTICIPANT.—The term 'participant' means an individual
who is eligible to defer compensation under the plan.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2781
"(4) BENEFICIARY.—The term 'beneficiary' means a beneficiary
of the participant, his estate, or any other person whose interest
in the plan is derived from the participant.
"(5) INCLUDIBLE COMPENSATION.—The term 'includible compen-
sation' means compensation for service performed for the State
which (taking into account the provisions of this section and
section 4O30b)) is currently includible in gross income,
"(6) COMPENSATION TAKEN INTO ACCOUNT AT PRESENT VALUE.—
Compensation shall be taken into account at its present value.
"(7) COMMUNITY PROPERTY LAWS.—The amount of includible -
compensation shall be determined without regard to any commu-
nity property laws.
"(8) INCOME ATTRIBUTABLE.—Gains from the disposition of
property shall be treated as income attributable to such
property.
"(9) SECTION TO APPLY TO RURAL ELECTRIC COOPERATIVES.—
"(A) IN GENERAL.—This section shall apply with respect to
any participant in a plan of a rural electric cooperative in
the same manner and to the same extent as if such plan were
a plan of a State.
"(B) RURAL ELECTRIC COOPERATIVE DEFINED.—For purposes
of subparagraph (A), the term 'rural electric cooperative'
means—
"(i) any organization described in section 501(c)(12) 26 USC 501.
which is exempt from tax under section 501(a) and
which is engaged primarily in providing electric service,
and
"(ii) any organization described in section 501(c)(6)
which is exempt from tax under section 501(a) and all
the members of which are organizations described in
clause (i).
"(e) TAX TREATMENT OF PARTICIPANTS WHERE PLAN OR ARRANGE-
MENT OF STATE IS NOT EUGIBLE.—
"(1) IN GENERAL.—In the case of a plan of a State providing for
a deferral of compensation, if such plan is not an eligible State
deferred compensation plan, then—
"(A) the compensation shall be included in the gross
income of the participant or beneficiary for the first taxable
year in which there is no substantial risk of forfeiture of the
rights to such compensation, and
"(B) the tax treatment of any amount made available
under the plan to a participant or beneficiary shall be
determined under section 72 (relating to annuities, etc.). 26 USC 72.
"(2) EXCEPTIONS.—Paragraph (1) shall not apply to—
"(A) a plan described in section 401(a) which includes a 26 USC 40i.
trust exempt from tax under section 501(a), 26 USC 501.
"(B) an annuity plan or contract described in section 403, 26 USC 403.
"(C) a qualified bond purchase plan described in section
405(a), 26 USC 405.
"(D) that portion of any plan which consists of a transfer of
property described in section 83, and 26 USC 83.
"(E) that portion of any plan which consists of a trust to
which section 402(b) applies. 26 USC 402.
"(3) DEFINITIONS.—For purposes of this subsection—
"(A) PLAN INCLUDES ARRANGEMENTS, ETC.—The term
'plan' includes any agreement or arrangement.
92 STAT. 2782 PUBLIC LAW 95-600—NOV. 6, 1978
"(B) SUBSTANTIAL RISK OF FORFEITURE.—The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to such compensation are
conditioned upon the future performance of substantial
services by any individual."
(b) CLERICAL AMENDMENT.—The table of sections for such subpart B
is amended by adding at the end thereof the following:
"Sec. 457. Deferred compensation plans with respect to service for State
and local governments.".
26 use 457 (c) EFFECTIVE DATE.—
"°*^- (1) IN GENERAL.—The amendments made by this section shall
apply to taxable years beginning after December 31, 1978.
(2) TRANSITIONAL RULES.—
(A) IN GENERAL.—In the case of any taxable year begin-
ning after December 31, 1978, and before January 1, 1982—
(i) any amount of compensation deferred under a plan
of a State providing for a deferral of compensation
(other than a plan described in section 457(e)(2) of the
Ante, p. 2779. Internal Revenue Code of 1954), and any income attrib-
utable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such
compensation or other income is paid or otherwise made
available to the participant or other beneficiary, but
(ii) the maximum amount of the compensation of any
one individual which may be excluded from gross
income by reason of clause (i) and by reason of section
457(a) of such Code during any such taxable year shall
not exceed the lesser of—
(I) $7,500, or
(II) 33 Vs percent of the participant's includible
compensation.
(B) APPLICATION OF CATCH-UP PROVISIONS IN CERTAIN
CASES.—If, in the case of any participant for any taxable
year, all of the plans are eligible State deferred compensa-
tion plans, then clause (ii) of subparagraph (A) of this
paragraph shall be applied with the modification provided
by paragraph (3) of section 457(b) of such Code.
(C) APPLICATIONS OF CERTAIN COORDINATION PROVISIONS.—
In applying clause (ii) of subparagraph (A) of this paragraph
26 use 403. and section 403(b)(2)(A)(ii) of such Code, rules similar to the
Ante, p. 2779. rules of section 457(c)(2) of such Code shall apply.
(D) MEANING OF TERMS.—Except as otherwise provided in
this paragraph, terms used in this paragraph shall have the
same meaning as when used in section 457 of such Code.
SEC. 132. CERTAIN PRIVATE DEFERRED COMPENSATION PLANS.
26 use 451 (a) GENERAL RULE.—The taxable year of inclusion in gross income
^^^^- of any amount covered by a private deferred compensation plan shall
be determined in accordance with the principles set forth in regula-
tions, rulings, and judicial decisions relating to deferred compensa-
tion which were in effect on February 1,1978.
(b) PRIVATE DEFERRED COMPENSATION PLAN DEFINED.—
(1) IN GENERAL.—For purposes of this section, the term "pri-
vate deferred compensation plan" means a plan, agreement, or
arrangement—
, (A) where the person for whom the service is performed is
not a State (within the meaning of paragraph (1) of section
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2783
457(d) of the Internal Revenue Code of 1954) and not an ^^te, p. 2779.
organization which is exempt from tax under section 501 of ^6 USC 501.
such Code, and
(B) under which the payment or otherwise making availa-
ble of compensation is deferred.
(2) CERTAIN PLANS EXCLUDED.—Paragraph (1) shall not apply
to—
(A) a plan described in section 401(a) of the Internal
Revenue Code of 1954 which includes a trust exempt from 26 USC 401.
tax under section 501(a) of such Code, 26 USC 501.
(B) an annuity plan or contract described in section 403 of 26 USC 403.
such Code,
(C) a qualified bond purchase plan described in section
405(a) of such Code, 26 USC 405.
(D) that portion of any plan which consists of a transfer of
property described in section 83 (determined without regard 26 USC 83.
to subsection (e) thereof) of such Code, and 26 USC 402.
(E) that portion of any plan which consists of a trust to
which section 4O20b) of such Code applies.
(c) EFFECTIVE DATE.—This section shall apply to taxable years
ending on or after February 1,1978.
SEC. 133. CLARIFICATION OF DEDUCTIBILITY OF PAYMENTS OF
DEFERRED COMPENSATION, ETC., TO INDEPENDENT
CONTRACTORS.
(a) I N GENERAL.—Section 404 (relating to deduction for contribu- 26 USC 404.
tions of an employer to an employees' trust or annuity plan and
compensation under a deferred-payment plan) is amended by insert-
ing after subsection (c) the following new subsection:
"(d) DEDUCTIBILITY OF PAYMENTS OF DEFERRED COMPENSATION, ETC.,
TO INDEPENDENT CONTRACTORS.—If a plan would be described in so
much of subsection (a) as precedes paragraph (1) thereof (as modified
by subsection (b)) but for the fact that there is no employer-employee
relationship, the contributions or compensation—
"(1) shall not be deductible by the payor thereof under section
162 or 212, but 26 USC 162,
"(2) shall (if they would be deductible under section 162 or 212 212.
but for paragraph (1)) be deductible under this subsection for the
taxable year in which an amount attributable to the contribution
or compensation is includible in the gross income of the persons
participating in the plan."
(b) CLARIFICATION OF SECTION 404(b).—-Subsection Ot)) of section 404 26 USC 404.
(relating to method of contributions, etc., having the effect of a plan)
is amended by striking out "similar plan" and inserting in lieu
thereof "other plan".
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 404
apply to deductions for taxable years beginning after December 31, "ote.
1978.
SEC. 134. TAX TREATMENT OF CAFETERIA PLANS.
(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by redesig-
nating section 125 as section 126 and by inserting after section 124 the 26 USC 126.
following new section:
"SEC. 125. CAFETERIA PLANS. 26 USC 125.
"(a) I N GENERAL.—Except as provided in subsection Ot)), no amount
shall be included in the gross income of a participant in a cafeteria
92 STAT. 2784 PUBLIC LAW 95-600—NOV. 6, 1978
plan solely because, under the plan, the participant may choose
among the benefits of the plan.
"(b) EXCEPTION FOR HIGHLY COMPENSATED PARTICIPANTS WHERE
PLAN IS DISCRIMINATORY.—
"(1) IN GENERAL.—In the case of a highly compensated partici-
pant, subsection (a) shall not apply to any benefit attributable to
a plan year for which the plan discriminates in favor of—
"(A) highly compensated individuals as to eligibility to
participate, or
: "(B) highly compensated participants as to contributions
*i • and benefits.
"(2) YEAR OF INCLUSION.—For purposes of determining the
taxable year of inclusion, any benefit described in paragraph (1)
shall be treated as received or accrued in the participant's
taxable year in which the plan year ends.
"(c) DISCRIMINATION AS TO BENEFITS OR CONTRIBUTIONS.—For pur-
poses of subparagraph (B) of subsection (b)(1), a cafeteria plan does
not discriminate where nontaxable benefits and total benefits (or
employer contributions allocable to nontaxable benefits and
employer contributions for total benefits) do not discriminate in favor
of highly compensated participants.
"(d) CAFETERIA PLAN DEFINED.—For purposes of this section—
"(1) IN GENERAL.—The term 'cafeteria plan' means a written
plan under which—
"(A) all participants are employees, and
"(B) the participants may choose among two or more
benefits.
The benefits which may be chosen may be nontaxable benefits, or
cash, property, or other taxable benefits.
"(2) DEFERRED COMPENSATION PLANS EXCLUDED.—The term
'cafeteria plan' does not include any plan which provides for
deferred compensation.
"(e) HIGHLY COMPENSATED PARTICIPANT AND INDIVIDUAL
DEFINED.—For purposes of this section—
"(1) HIGHLY COMPENSATED PARTICIPANT.—The term 'highly
compensated participant' means a participant who is—
"(A) an officer,
"(B) a shareholder owning more than 5 percent of the
voting power or value of all classes of stock of the employer,
"(C) highly compensated, or
"(D) a spouse or dependent (within the meaning of section
26 use 152. 152) of an individual described in subparagraph (A), (B), or
(C).
"(2) HIGHLY COMPENSATED INDIVIDUAL.—The term 'highly
compensated individual' means an individual who is described in
subparagraphs (A), (B), (C), or (D) of paragraph (1).
"(f) NONTAXABLE BENEFIT DEFINED.—For purposes of this section,
the term 'nontaxable benefit' means any benefit which, with the
application of subsection (a), is not includible in the gross income of
the employee.
"(g) SPECIAL RULES.—
ii "(1) COLLECTIVELY BARGAINED PLAN NOT CONSIDERED
DISCRIMINATORY.—For purposes of this section, a plan shall not
be treated as discriminatory if the plan is maintained under an
agreement which the Secretary finds to be a collective bargain-
ing agreement between employee representatives and one or
more employers.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2785
*'(2) HEALTH BENEFITS.—For purposes of subparagraph (B) of
subsection (b)(1), a cafeteria plan which provides health benefits
shall not be treated as discriminatory if—
"(A) contributions under the plan on behalf of each partici-
pant include an amount which—
"(i) equals 100 percent of the cost of the health benefit
coverage under the plan of the majority of the highly
compensated participants similarly situated, or
"(ii) equals or exceeds 75 percent of the cost of the
health benefit coverage of the participant (similarly
situated) having the highest cost health benefit coverage
under the plan, and
"(B) contributions or benefits under the plan in excess of
those described in subparagraph (A) bear a uniform relation-
ship to compensation.
"(3) CERTAIN PARTICIPATION EUGIBILITY RULES NOT TREATED AS
DISCRIMINATORY.—For purposes of subparagraph (A) of subsec-
tion (b)(1), a classification shall not be treated as discriminatory if
the plan—
"(A) benefits a group of employees described in subpara-
graph (B) of section 410(b)(1), and 26 USC 410.
"(B) meets the requirements of clauses (i) and (ii):
"(i) No employee is required to complete more than 3
years of employment with the employer or employers
maintaining the plan as a condition of participation in
the plan, and the service requirement for each employee
is the same.
"(ii) Any employee who has satisfied the employment
requirement of clause (i) and who is otherwise entitled
to participate in the plan commences participation no
later than the first day of the first plan year beginning
after the date the service requirement was satisfied
unless the employee was separated from service before
the first day of that plan year.
"(4) CERTAIN CONTROLLED GROUPS.—All employees who are
treated as employed by a single employer under subsection (b) or
(c) of section 414 shall be treated as employed by a single 26 USC 414.
employer for purposes of this section.
"(h) REGULATIONS.—The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this section."
(b) CLERICAL AMENDMENT.—The table of sections for part III of
subchapter B of chapter 1 is amended by striking out the item
relating to section 124 and inserting in lieu thereof the following:
"Sec. 125. Cafeteria plans.
"Sec. 126. Cross references to other Acts."
(c)
EFFECTIVE DATE.—The amendments made by this section shall 26 USC 125
apply to taxable years beginning after December 31,1978, "^te.
SEC. 135. CERTAIN CASH OR DEFERRED ARRANGEMENTS.
(a) IN GENERAL.—Section 401 (relating to qualified pension, profit- 26 USC 401.
sharing, and stock bonus plans) is amended by redesignating subsec-
tion (k) as (1) and by inserting after subsection (j) the following new
subsection:
"(k) CASH OR DEFERRED ARRANGEMENTS,—
"(1) GENERAL RULE.—A profit-sharing or stock bonus plan shall
not be considered as not satisfying the requirements of subsec-
92 STAT. 2786 PUBLIC LAW 95-600—NOV. 6, 1978
tion (a) merely because the plan includes a qualified cash or
deferred arrangement.
"(2) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—A qualified
cash or deferred arrangement is any arrangement which is part
of a profit-sharing or stock bonus plan which meets the require-
ments of subsection (a)—
"(A) under which a covered employee may elect to have
the employer make payments as contributions to a trust
under the plan on behalf of the employee, or to the employee
directly in cash;
"(B) under which amounts held by the trust which are
attributable to employer contributions made pursuant to the
employee's election may not be distributable to participants
or other beneficiaries earlier than upon retirement, death,
disability, or separation from service, hardship or the attain-
ment of age 59 ¥2, and will not be distributable merely by
reason of the completion of a stated period of participation or
the lapse of a fixed number of years; and
"(C) which provides that an employee's right to his
accrued benefit derived from employer contributions made
to the trust pursuant to his election are nonforfeitable.
"(3) APPLICATION OF PARTICIPATION AND DISCRIMINATION
STANDARDS.—
"(A) A qualified cash or deferred arrangement shall be
considered to satisfy the requirements of subsection (a)(4),
with respect to the amount of contributions, and of subpara-
26 use 410. graph (B) of section 410(b)(1) for a plan year if those employ-
ees eligible to benefit under the plan satisfy the provisions of
subparagraph (A) or (B) of section 410(b)(1) and if the actual
deferral percentage for highly compensated employees (as
defined in paragraph (4)) for such plan year bears a relation-
ship to the actual deferral percentage for all other eligible
employees for such plan year which meets either of the
following tests:
"(i) The actual deferral percentage for the group of
highly compensated employees is not more than the
actual deferral percentage of all other eligible employ-
ees multiplied by 1.5.
"(ii) The excess of the actual deferral percentage for
the group of highly compensated employees over that of
all other eligible employees is not more than 3 percent-
age points, and the actual deferral percentage for the
group of highly compensated employees is not more
than the actual deferral percentage of all other eligible
employees multiplied by 2.5.
"(B) For purposes of subparagraph (A), the actual deferral
percentage for a specified group of employees for a plan year
shall be the average of the ratios (calculated separately for
each employee in such group) of—
"(i) the amount of employer contributions actually
paid over to the trust on behalf of each such employee
for such plan year, to
"(ii) the employee's compensation for such plan year.
For purposes of the preceding sentence, the compensation of any
employee for a plan year shall be the amount of his compensation
which is taken into account under the plan in calculating the
contribution which may be made on his behalf for such plan year.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2787
"(4) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this
subsection, the term 'highly compensated employee' means any
employee who is more highly compensated than two-thirds of all
eligible employees, taking into account only compensation which
is considered in applying paragraph (3)."
(b) TAXABILITY OF BENEFICIARIES.—Subsection (a) of section 402 is 26 use 402
amended by adding at the end thereof the following new paragraph:
"(8) CASH OR DEFERRED ARRANGEMENTS.—For purposes of this
title, contributions made by an employer on behalf of an
employee to a trust which is a part of a qualified cash or deferred
arrangement (as defined in section 401(k)(2)) shall not be treated 26 u s e 401.
as distributed or made available to the employee nor as contribu-
tions made to the trust by the employee merely because the
arrangement includes provisions under which the employee has
an election whether the contribution will be made to the trust or
received by the employee in cash."
(c) EFFECTIVE DATE.— 26 use 401
(1) I N GENERAL.—The amendments made by this section shall note.
apply to plan years beginning after December 31,1979.
(2) TRANSITIONAL RULE.—In the case of cash or deferred
arrangements in existence on June 27,1974—
(A) the qualification of the plan and the trust under
section 401 of the Internal Revenue Code of 1954; 26 use 401.
(B) the exemption of the trust under section 501(a) of such 26 use 501.
Code;
(C) the taxable year of inclusion in gross income of the
employee of any amount so contributed by the employer to
the trust; and
(D) the excludability of the interest of the employee in the
trust under sections 2039 and 2517 of such Code, 26 use 2039,
shall be determined for plan years beginning before January 1, 2517.
1980 in a manner consistent with Revenue Ruling 56-497 (1956-2
C.B. 284), Revenue Ruling 63-180 (1963-2 C.B, 189), and Revenue
Ruling 68-89 (1968-1 C.B. 402).
PART II—EMPLOYEE STOCK OWNERSHIP PLANS
SEC. 141. ESOPS.
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter 1
(relating to general rule for pension, profit-sharing, stock bonus
plans, etc.) is amended by adding at the end thereof the following new
section:
"SEC. 409A. QUALIFICATIONS FOR ESOPS. 26 u s e 409A.
"(a) ESQ? DEFINED.—Except as otherwise provided in this title, for
purposes of this title, the term 'ESOP' means a defined contribution
plan which—
"(1) meets the requirements of section 401(a), 26 u s e 401.
"(2) is designed to invest primarily in employer securities, and
"(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g),
and (h) of this section.
"Ot)) REQUIRED ALLOCATION OF EMPLOYER SECURITIES.—
"(1) I N GENERAL.—A plan meets the requirements of this
subsection if—
"(A) the plan provides for the allocation for the plan year
of all employer securities transferred to it or purchased by it
(because of the requirements of section 48(n)(l)(A)) to the
92 STAT. 2788 PUBLIC LAW 95-600—NOV. 6, 1978
accounts of all participants who are entitled to share in such
allocation, and
"(B) for the plan year the allocation to each participant so
entitled is an amount which bears substantially the same
proportion to the amount of all such securities allocated to
all such participants in the plan for that year as the amount
of compensation paid to such participant during that year
bears to the compensation paid to all such participants
during that year.
"(2) COMPENSATION IN EXCESS OF $100,000 DISREGARDED.—For
purposes of paragraph (1), compensation of any participant in
excess of the first $100,000 per year shall be disregarded.
"(3) DETERMINATION OF COMPENSATION.—For purposes of this
subsection, the amount of compensation paid to a participant for
any period is the amount of such participant's compensation
26 use 415. (within the meaning of section 415(c)(3)) for such period.
"(4) SUSPENSION OF ALLOCATION IN CERTAIN CASES.—Notwith-
standing paragraph (1), the allocation to the account of any
participant which is attributable to the basic ESOP credit may be
extended over whatever period may be necessary to comply with
the requirements of section 415.
"(c) PARTICIPANTS MUST HAVE NONFORFEITABLE RIGHTS.—A plan
meets the requirements of this subsection only if it provides that each
participant has a nonforfeitable right to any employer security
allocated to his account.
"(d) EMPLOYER SECURITIES MUST STAY IN THE PLAN.—A plan meets
the requirements of this subsection only if it provides that no
employer security allocated to a participants's account under subsec-
tion (b) may be distributed from that account before the end of the
84th month beginning after the month in which the security is
allocated to the account. To the extent provided in the plan, the
preceding sentence shall not apply in the case of separation from
service, death, or disability.
"(e) VOTING RIGHTS.—
"(1) I N GENERAL.—A plan meets the requirements of this
subsection if it meets the requirements of paragraph (2) or (3),
whichever is applicable.
"(2) REQUIREMENTS WHERE EMPLOYER HAS A REGISTRATION-TYPE
CLASS OF SECURITIES.—If the employer has a registration-type
class of securities, the plan meets the requirements of this
paragraph only if each participant in the plan is entitled to direct
the plan as to the manner in which employer securities which
are entitled to vote and are allocated to the account of such
participant are to be voted.
"(3) REQUIREMENT FOR OTHER EMPLOYERS.—If the employer
does not have a registration-type class of securities, the plan
meets the requirements of this paragraph only if each partici-
pant in the plan is entitled to direct the plan as to the manner in
which voting rights under employer securities which are allo-
cated to the account of such participant are to be exercised with
respect to a corporate matter which (by law or charter) must be
decided by more than a majority vote of outstanding common
shares voted.
"(4) REGISTRATION-TYPE CLASS OF SECURITIES DEFINED.—For pur-
poses of this subsection, the term, 'registration-type class of
securities' means—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2789
"(A) a class of securities required to be registered under
section 12 of the Securities Exchange Act of 1934, and 15 USC 78/.
"(B) a class of securities which would be required to be so
registered except for the exemption from registration pro-
vided in subsection (g)(2)(H) of such section 12.
"(f) PLAN MUST B E ESTABLISHED BEFORE EMPLOYER'S DUE DATE.—
"(1) IN GENERAL.—A plan meets the requirements of this
subsection for a plan year only if it is established on or before the
due date for the filing of the employer's tax return for the taxable
year (including any extensions of such date) in which or with
which the plan year ends.
"(2) SPECIAL RULE FOR FIRST YEAR.—A plan which otherwise
meets the requirements of this section shall not be considered to
have failed to meet the requirements of section 401(a) merely 26 USC 401.
because it was not established by the close of the first taxable
year of the employer for which an ESOP credit is claimed by the
employer.
"(g) TRANSFERRED AMOUNTS MUST STAY IN PLAN EVEN THOUGH
INVESTMENT CREDIT IS REDETERMINED OR RECAPTURED.—A plan meets
the requirement of this subsection only if it provides that amounts
which are transferred to the plan (because of the requirements of
section 48(n)(l)) shall remain in the plan (and, if allocated under the 26 USC 48.
plan, shall remain so allocated) even though part or all of the ESOP
credit is recaptured or redetermined.
"(h) RIGHT TO DEMAND EMPLOYER SECURITIES; PUT OPTION.—
"(1) IN GENERAL.—A plan meets the requirements of this
subsection if a participant who is entitled to a distribution from
the plan—
"(A) has a right to demand that his benefits be distributed
in the form of employer securities, and
"(B) if the employer securities are not readily tradable on
an established market, has a right to require that the
employer repurchase employer securities under a fair valua-
tion formula.
"(2) PLAN MAY DISTRIBUTE CASH IN CERTAIN CASES.—A plan
which otherwise meets the requirements of this section shall not
be considered to have failed to meet the requirements of section
401(a) merely because under the plan the benefits may be
distributed in cash or in the form of employer securities,
"(i) REIMBURSEMENT FOR EXPENSES OF ESTABLISHING AND ADMINIS-
TERING PLAN.—A plan which otherwise meets the requirements of
this section shall not be treated as failing to meet such requirements
merely because it provides that—
"(1) EXPENSES OF ESTABLISHING PLAN.—As reimbursement for
the expenses of establishing the plan, the employer may with-
hold from amounts due the plan for the taxable year for which
the plan is established (or the plan may pay) so much of the
amounts paid or incurred in connection with the establishment
of the plan as does not exceed the sum of—
"(A) 10 percent of the first $100,000 which the employer is
required to transfer to the plan for that taxable year under
section 48(n)(l), and
"(B) 5 percent of any amount so required to be transferred
in excess of the first $100,000; and
"(2) ADMINISTRATIVE EXPENSES.—As reimbursement for the
expenses of administering the plan, the employer may withhold
from amounts due the plan (or the plan may pay) so much of the
92 STAT. 2790 PUBLIC LAW 95-600—NOV. 6, 1978
amounts paid or incurred during the taxable year as expenses of
administering the plan as does not exceed the lesser of—
"(A) the sum of—
"(i) 10 percent of the first $100,000 of the dividends
paid to the plan with respect to stock of the employer
during the plan year ending with or within the employ-
er's taxable year, and
"(ii) 5 percent of the amount of such dividends in
excess of $100,000 or
"(B) $100,000.
"(j) CONDITIONAL CONTRIBUTIONS TO THE PLAN.—A plan which
otherwise meets the requirements of this section shall not be treated
as failing to satisfy such requirements (or as failing to satisfy the
26 use 401. requirements of section 401(a) of this title or of section 403(c)(1) of the
29 use 1103. Employee Retirement Income Security Act of 1974) merely because of
the return of a contribution (or a provision permitting such a return)
if—
"(1) the contribution to the plan is conditioned on a determina-
tion by the Secretary that such plan meets the requirements of
this section,
"(2) the application for a determination described in paragraph
(1) is filed with the Secretary not later than 90 days after the date
on which an ESOP credit is claimed, and
"(3) the contribution is returned within 1 year after the date on
which the Secretary issues notice to the employer that such plan
does not satisfy the requirements of this section,
"(k) REQUIREMENTS RELATING TO CERTAIN WITHDRAWALS.—Not-
withstanding any other law or rule of law—
"(1) the withdrawal from a plan which otherwise meets the
requirements of this section by the employer of an amount
contributed for purposes of the matching ESOP credit shall not
be considered to make the benefits forfeitable, and
"(2) the plan shall not, by reason of such withdrawal, fail to be
for the exclusive benefit of participants or their beneficiaries,
if the withdrawn amounts were not matched by employee contribu-
26 use 415. tions or were in excess of the limitations of section 415. Any
withdrawal described in the preceding sentence shall not be consid-
ered to violate the provisions of section 403(c)(1) of the Employee
Retirement Income Security Act of 1974.
"(1) EMPLOYER SECURITIES DEFINED.—For purposes of this section—
"(1) IN GENERAL.—The term 'employer securities' means
common stock issued by the employer (or by a corporation which
is a member of the same controlled group) which is readily
tradable on an established securities market.
"(2) SPECIAL RULE WHERE THERE IS NO READILY TRADABLE
COMMON STOCK.—If there is no common stock which meets the
requirements of paragraph (1), the term 'employer securities*
means common stock issued by the employer (or by a corporation
which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or in
excess of—
"(A) that class of common stock of the employer (or of any
other such corporation) having the greatest voting power,
and
"(B) that class of stock of the employer (or of any other
such corporation) having the greatest dividend rights.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2791
"(3) PREFERRED STOCK MAY BE ISSUED IN CERTAIN CASES.—
Noncallable preferred stock shall be treated as meeting the
requirements of paragraph (1) if such stock is convertible at any
time into stock which meets the requirements of paragraph (1)
and if such conversion is at a conversion price which (as of the
date of the acquisition by the ESOP) is reasonable.
"(4) CONTROLLED GROUP OF CORPORATIONS DEFINED.—
"(A) IN GENERAL.—For purposes of this subsection, the
term 'controlled group of corporations' has the meaning
given to such term by section 1563(a) (determined without 26 USC 1563.
regard to subsections (a)(4) and (e)(3)(C) of section 1563).
"(B) COMMON PARENT MAY OWN ONLY 50 PERCENT OF FIRST
TIER SUBSIDIARY.—For purposes of subparagraph (A), if the
common parent owns directly stock possessing at least 50
percent of the voting power of all classes of stock and at least
50 percent of each class of nonvoting stock in a first tier
subsidiary, such subsidiary (and all other corporations below
it in the chain which would meet the 80 percent test of
section 1563(a) if the first tier subsidiary were the common
parent) shall be treated as includible corporations,
"(m) CONTRIBUTIONS OF STOCK OF CONTROLLING CORPORATION.—If
the stock of a corporation which controls another corporation or
which controls a corporation controlled by such other corporation is
contributed to an ESOP of the controlled corporation, then no gain or
loss shall be recognized, because of that contribution, to the con-
trolled corporation. For purposes of this subsection, the term 'control'
has the same meaning as that term has in section 368(c). 26 use 368.
"(n) CROSS REFERENCES.—
"(1) For requirements for allowance of ESOP credit, see section 48(n).
"(2) For assessable penalties for failure to meet requirements of this
section, or for failure to make contributions required with respect to the
allowance of an ESOP credit, see section 6699."
(b) AMENDMENT OF INVESTMENT CREDIT RULES.—Section 48 (relat- 26 use 48.
ing to definitions and special rules) is amended by redesignating
subsection (n) as subsection (p) and by inserting after subsection (m)
the following new subsections:
"(n) REQUIREMENTS FOR ALLOWANCE OF ESOP PERCENTAGE.—
"(1) I N GENERAL.—
"(A) BASIC ESOP PERCENTAGE.—The basic ESOP percentage
shall not apply to any taxpayer for any taxable year unless
the taxpayer on his return for such taxable year agrees, as a
condition for the allowance of such percentage—
"(i) to make transfers of employer securities to an
ESOP maintained by the taxpayer having an aggregate
value equal to 1 percent of the amount of the qualified
investment (as determined under subsections (c) and (d)
of section 46) for the taxable year, and 26 USC 46.
"(ii) to make such transfers at the times prescribed in
subparagraph (C).
"(B) MATCHING ESOP PERCENTAGE.—The matching ESOP
percentage shall not apply to any taxpayer for any taxable
year unless the basic ESOP percentage applies to such
taxpayer for such taxable year, and the taxpayer on his
return for such taxable year agrees, as a condition for the
allowance of the matching ESOP percentage—
"(i) to make transfers of employer securities to an
ESOP maintained by the taxpayer having an aggregate
value equal to the sum of the qualified matching
92 STAT. 2792 PUBLIC LAW 95-600—NOV. 6, 1978
employee contributions made to such ESOP for the
taxable year, and
"(ii) to make such transfers at the times prescribed in
subparagraph (C).
"(C) TIMES FOR MAKING TRANSFERS.—The aggregate of the
transfers required under subparagraphs (A) and (B) shall be
made—
"(i) to the extent allocable to that portion of the ESOP
credit allowed for the taxable year or allowed as a
carryback to a preceding taxable year, not later than 30
days after the due date (including extensions) for filing
the return for the taxable year, or
"(ii) to the extent allocable to that portion of the ESOP
credit which is allowed as a carryover in a succeeding
taxable year, not later than 30 days after the due date
(including extensions) for filing the return for such
succeeding taxable year.
The Secretary may by regulations provide that transfers
may be made later than the times prescribed in the preced-
ing sentence where the amount of any credit or carryover or
carryback for any taxable year exceeds the amount shown
on the return for the taxable year.
"(D) ORDERING RULES.—For purposes of subparagraph (C),
the portion of the ESOP credit allowed for the current year
or as a carryover or carryback shall be determined—
"(i) first by treating the credit or carryover or carry-
back as attributable to the regular percentage,
"(ii) second by treating the portion (not allocated
under clause (i)) of such credit or carryover or carryback
as attributable to the basic ESOP percentage, and
"(iii) finally by treating the portion (not allocated
under clause (i) or (ii) as attributable to the matching
ESOP percentage.
"(2) QUALIFIED MATCHING EMPLOYEE CONTRIBUTION DEFINED.—
"(A) I N GENERAL.—For purposes of this subsection, the
term 'qualified matching employee contribution' means,
with respect to any taxable year, any contribution made by
an employee to an ESOP maintained by the taxpayer if—
"(i) each employee who is entitled to an allocation of
employer securities transferred to the ESOP under
paragraph (1)(A) is entitled to make such a contribution,
"(ii) the contribution is designated by the employee as
a contribution intended to be taken into account under
this subparagraph for the taxable year,
"(iii) the contribution is paid in cash to the employer
or plan administrator not later than 24 months after the
close of the taxable year, and is invested forthwith in
employer securities, and
"(iv) the ESOP meets the requirements of subpara-
graph (B).
"(B) PLAN REQUIREMENTS.—For purposes of subparagraph
(A), an ESOP meets the requirements of this subparagraph
if—
"(i) participation in the ESOP Is not required as a
condition of employment and the ESOP does not require
matching employee contributions as a condition of par-
ticipation in the ESOP,
PUBLIC LAW 95-600--NOV. 6, 1978 92 STAT. 2793
"(ii) employee contributions under the ESOP meet the
requirements of section 401(aK4), and 26 USC 401.
"(iii) the ESOP provides for allocation of all employer
securities transferred to it or purchased by it (because of
the requirements of paragraph (1)(B)) to the account of
each participant in an amount equal to such partici-
pant's matching employee contributions for the year.
"(3) CERTAIN CONTRIBUTIONS OF CASH TREATED AS CONTRIBU-
TIONS OF EMPLOYER SECURITIES.—For purposes of this subsection,
a transfer of cash shall be treated as a transfer of employer
securities if the cash is, under the ESOP, used within 30 days to
purchase employer securities.
"(4) ADJUSTMENTS IF ESOP CREDIT RECAPTURED.—If any portion
of the ESOP credit is recaptured under section 47 or the ESOP 26 USC 47.
credit is reduced by a final determination—
"(A) the employer may reduce the amount required to be
transferred to the ESOP under paragraph (1) for the current
taxable year or any succeeding taxable year by an amount
equal to such portion (or reduction), or
"(B) notwithstanding the provisions of paragraph (5) and
to the extent not taken into account under subparagraph (A),
the employer may deduct an amount equal to such portion
(or reduction), subject to the limitations of section 404. 26 USC 404.
"(5) DISALLOWANCE OF DEDUCTION.—No deduction shall be
allowed under section 162, 212, or 404 for amounts required to be 26 USC 162,
transferred to an ESOP under this subsection. 212, 404.
"(6) DEFINITIONS.—For purposes of this subsection—
"(A) EMPLOYER SECURITIES.—The term 'employer securi-
ties' has the meaning given to such term by section 409A(l).
'XB) VALUE.—The term 'value' means—
"(i) in the case of securities listed on a national
exchange, the average of closing prices of such securities
for the 20 consecutive trading days immediately preced-
ing the due date for filing the return for the taxable year
(determined with regard to extensions), or
"(ii) in the case of securities not listed on a national
exchange, the fair market value as determined in good
faith and in accordance with regulations prescribed by
the Secretary,
'(o) CERTAIN CREDITS DEFINED.—For purposes of this title—
"(1) REGULAR INVESTMENT CREDIT.—The term 'regular invest-
ment credit' means that portion of the credit allowable by section
38 which is attributable to the regular percentage. 26 USC 38.
"(2) ENERGY INVESTMENT CREDIT.—The term 'energy invest-
ment credit' means that portion of the credit allowable by section
38 which is attributable to the energy percentage.
"(3) ESOP CREDIT.—The term 'ESOP credit' means the sum
of-
' '(A) the basic ESOP credit, and
"(B) the matching ESOP credit.
"(4) BASIC ESOP CREDIT.—The term 'basic ESOP credit' means
that portion of the credit allowable by section 38 which is
attributable to the basic ESOP percentage.
"(5) MATCHING ESOP CREDIT.—The term 'matching ESOP credit'
means that portion of the credit allowable by section 38 which is
attributable to the matching ESOP.
39-194 O—80—pt. 3 11 : QL3
92 STAT. 2794 PUBLIC LAW 95-600—NOV. 6, 1978
"(6) BASIC ESOP PERCENTAGE.—The term 'basic ESOP percent-
age' means the 1-percent ESOP percentage set forth in section
26 use 46. 46(a)(2)(E)(i).
"(7) MATCHING ESOP PERCENTAGE.—The term 'matching ESOP
percentage' means the additional ESOP percentage (not to
exceed ¥2 of 1 percent) set forth in section 46(a)(2XEXii)."
(c) ASSESSABLE PENALTIES.—
(1) I N GENERAL.—Subchapter B of chapter 68 (relating to
assessable penalties) is amended by adding at the end thereof the
following new section:
26 u s e 6699. "SEC. 6699. ASSESSABLE PENALTIES RELATING TO ESOP.
"(a) I N GENERAL.—If a taxpayer who has claimed an ESOP credit
for any taxable year—
26 use 409. "(1) fails to satisfy any requirement provided by section 409A,
or
"(2) fails to make any contribution which is required under
26 use 48. section 48(n) within the period required for making such
contribution,
the taxpayer shall pay a penalty in an amount equal to the amount
involved in such failure.
"(b) No PENALTY WHERE THERE Is TIMELY CORRECTION OF FAIL-
URE.—Subsection (a) shall not apply with respect to any failure if the
employer corrects such failure (as determined by the Secretary)
within 90 days after the Secretary notifies him of such failure.
"(c) AMOUNT INVOLVED DEFINED.—
"(1) IN GENERAL.—For purposes of this section, the term
'amount involved' means an amount determined by the
Secretary.
"(2) MAXIMUM AND MINIMUM AMOUNT.—The amount deter-
mined under paragraph (1)—
"(A) shall not exceed the amount determined by multiply-
ing the qualified investment of the employer for the taxable
year to which the failure relates by the ESOP percentage
claimed by the employer for such year, and
"(B) shall not be less than the product of one-half of 1
percent of the amount referred to in subparagraph (A),
multiplied by the number of months (or parts thereof) during
which such failure continues."
(2) CLERICAL AMENDMENT.—The table of sections for such
subchapter B is amended by adding at the end thereof the
following new item:
"Sec. 6699. Assessable penalties relating to ESOP."
26 use 56. (d) REGULAR TAX DEDUCTION FOR PURPOSES OF THE MINIMUM TAX
DETERMINED WITHOUT REGARD TO ESOP PERCENTAGE.—Subsection
(c) of section 56 (defining regular tax deduction) is amended by adding
at the end thereof the following new sentence: "For purposes of the
preceding sentence, the amount of the credit allowable under section
38 shall be determined without regard to the ESOP percentage set
forth in section 46(a)(2)(E)."
26 use 46. (e) ESOP CREDIT EXTENDED FOR 3 YEARS.—Subparagraph (E) of
section 46(a)(2) (relating to amount of business investment credit for
current taxable year) is amended by striking out "and ending on
December 31, 1980," each place it appears and inserting in lieu
thereof "December 31,1983".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2795
(f) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsections (d), (e), and (f) of section 301 of the Tax Repeal.
Reduction Act of 1975 are hereby repealed. 26 use 46 note.
(2) Subparagraph (E) of section 46(aX2) is amended— 26 use 46.
(A) by striking out "section 301(e) of the Tax Reduction Act
of 1975" and inserting in Heu thereof "section 48(n)(l)(B)", 26 USe 48.
and
(B) by striking out "section 301(d) of the Tax Reduction Act
of 1975" and inserting in Heu thereof "section 409A".
(3) Paragraph (21) of section 401(a) is amended to read as 26 use 401.
follows:
"(21) A trust forming part of an ESOP shall not fail to be
considered a permanent program merely because employer con-
tributions under the plan are determined solely by reference to
the amount of credit which would be allowable under section
46(a) if the employer made the transfer described in section 26 use 26.
48(n)(l)." 26 use 48.
(4) The last sentence of section 1504(a) (defining affiliated 26 USe 1504.
group) is amended to read as follows:
"As used in this subsection, the term 'stock' does not include
nonvoting stock which is limited and preferred as to dividends,
employer securities (within the meaning for section 409A(1)) while Ante, p. 2787.
such securities are held under an ESOP, or qualifying employer
securities (within the meaning of section 4975(e)(8)) while such 26 USC 4975.
securities are held under a leveraged employee stock ownership plan
which meets the requirements of section 4975(e)(7)."
(5) Paragraph (7) of section 4975(e) (defining employee stock 26 use 4975.
ownership plan) is amended—
(A) by striking out "EMPLOYEE" in the paragraph heading
and inserting in lieu thereof "LEVERAGED EMPLOYEE", and
(B) by striking out "employee" in the text and inserting in
lieu thereof "leveraged employee", and
(C) by adding at the end thereof the following new
sentence:
"A plan shall not be treated as as leveraged employee stock
ownership plan unless it meets the requirements of subsections
(e) and (h) of section 409A." Ante, p. 2787.
(6) Paragraph (3) of section 4975(d) is amended by striking out 26 USe 4975.
"employee" and inserting in lieu thereof "leveraged employee".
(7) Subparagraph (B) of section 415(c)(6) is amended by striking 26 use 415.
out clauses (i) and (ii) and inserting in lieu thereof the following:
"(i) the term 'employee stock ownership plan' means a
leveraged employee stock ownership plan (within the
meaning of section 4975(e)(7)) or an ESOP, 26 USC 4975.
"(ii) the term 'employer securities' has the meaning
given to such term by section 409A,". Ante, p. 2787.
(8) The table of sections for part I of subchapter D of chapter 1
is amended by inserting after the item relating to section 409 the
following new item:
"Sec. 409A. Qualification for ESOPs."
(9) Section 404(a)(2) and section 805(d) are each amended by 26 use 404,
striking out "and (20)" and inserting in lieu thereof "(20), and ^o^-
(22)".
(g) EFFECTIVE DATES.— 26 use 409A
(1) IN GENERAL.—The amendments made by this section (other note.
than by subsection (f)(3)) shall apply with respect to qualified
investment for taxable years beginning after December 31,1978.
92 STAT. 2796 PUBLIC LAW 95-600—NOV. 6, 1978
The amendment made by subsection (f)(7) shall apply to years
beginning after December 31,1978.
26 use 56 note. (2) RETROACTIVE APPLICATION OF AMENDMENT MADE BY SUBSEC-
TION (d).—In determining the regular tax deduction under sec-
26 use 6. tion 6 of the Internal Revenue Code of 1954 for any taxable year
beginning before January 1, 1979, the amount of the credit
26 use 38. allowable under section 38 shall be determined without regard to
26 use 46. section 46(a)(2)(B) of such Code (as in effect before the enactment
92 Stat. 3174. of the Energy Tax Act of 1978).
26 u s e 1 note.
SEC. 142. CERTAIN LUMP SUM DISTRIBUTIONS EXCLUDED FROM GROSS
ESTATE WHERE RECIPIENT ELECTS NOT TO APPLY 10-YEAR
AVERAGING.
26 use 2039. (a) IN GENERAL.—Subsection (c) of section 2039 (relating to exemp-
tion of annuities under certain trusts and plans) is amended by
striking out "(other than a lump sum distribution described in section
26 use 402. 402(e)(4), determined without regard to the next to the last sentence
of section 402(e)(4)(A))" and inserting in lieu thereof "(other than an
amount described in subsection (f))"
26 use 2039. Qy^ DEFINITIONS.—Section 2039 is amended by adding at the end
thereof the following new subsection:
"(f) LUMP SUM DISTRIBUTIONS.—
"(1) IN GENERAL.—An amount is described in this subsection if
26 use 402. it is a lump sum distribution described in section 402(eX4)
(determined without regard to the next to the last sentence of
section 402(e)(4)(A)).
"(2) EXCEPTION WHERE RECIPIENT ELECTS NOT TO TAKE IO-YEAR
AVERAGING.—A lump sum distribution described in paragraph
(1) shall be treated as not described in this subsection if the
recipient elects irrevocably (at such time and in such manner as
the Secretary may by regulations prescribe) to treat the distribu-
tion as taxable under section 402(a) without the application of
paragraph (2) thereof."
26 use 2039 (c) EFFECTIVE DATE.—The amendments made by this section shall
note. apply with respect to the estates of decedents dying after Decem-
ber 31, 1978.
SEC. 143. QUALIFIED PLANS REQUIRED TO PASS THROUGH VOTING
RIGHTS ON EMPLOYER SECURITIES.
26 use 401. (a) IN GENERAL.—Subsection (a) of section 401 (relating to qualified
pension, profit-sharing, and stock bonus plans) is amended by insert-
ing after paragraph (21) the following new paragraph:
"(22) Ifa defined contributions plan—
"(A) is established by an employer whose stock is not
publicly traded, and
"(B) after acquiring securities of the employer, more than
10 percent of the total assets of the plan as securities of the
employer,
any trust forming part of said plan shall not constitute a
qualified trust under this section unless the plan meets the
Ante, p. 2787. requirements of subsection (e) of section 409A."
26 use 401 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall
note. apply to acquisitions of securities after December 31,1979.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2797
Subtitle E—Retirement Plans
SEC. 152. SIMPLIFIED EMPLOYEE PENSIONS.
(a) INCREASE IN MAXIMUM LIMITATION UNDER SECTION 408 TO 26 use 408.
$7,500.—Section 408 (relating to individual retirement account) is
amended by redesignating subsection (j) as subsection (m) and by
inserting after subsection (i) the following new subsection:
"(j) INCREASE IN MAXIMUM LIMITATIONS FOR SIMPLIFIED EMPLOYEE
PENSIONS.—In the case of a simplified employee pension, this section
shall be applied by substituting '$7,500' for '$1,500' in the following
provisions:
"(1) paragraph (1) of subsection (a),
"(2) paragraph (2) of subsection (b), and
"(3) paragraph (5) of subsection Ot>)."
(b) SIMPLIFIED EMPLOYEE PENSION DEFINED.—Section 408 is
amended by inserting after subsection (j) the following new
subsection:
"(k) SiMPUFiED EMPLOYEE PENSION DEFINED.—
"(1) I N GENERAL.—For purposes of this title, the term 'simpli-
fied employee pension' means an individual retirement account
or individual retirement annuity with respect to which the
requirements of paragraphs (2), (3), (4), and (5) of this subsection
are met.
"(2) PARTICIPATION REQUIREMENTS.—This paragraph is satis-
fied with respect to a simplified employee pension for a calendar
\ year only if for such year the employer contributes to the
1 simplified employee pension of each employee who—
\ "(A) has attained age 25, and
\ "(B) has performed service for the employer during at
least 3 of the immediately preceding 5 calendar years.
\ "(3) CONTRIBUTIONS MAY NOT DISCRIMINATE IN FAVOR OF THE
\ HIGHLY COMPENSATED, ETC.—
"(A) I N GENERAL.—The requirements of this paragraph
are met with respect to a simplified employee pension for a
\ calendar year if for such year the contributions made by the
I employer to simplified employee pensions for his employees
do not discriminate in favor of any employee who is—
"(i) an officer,
"(ii) a shareholder,
"(iii) a self-employed individual, or
"(iv) highly compensated.
"(B) SPECIAL RULES.—For purposes of subparagraph (A)—
"(i) there shall be excluded from consideration
employees described in subparagraph (A) or (C) of sec-
tion 410(b)(2), and 26 USC 410.
"(ii) an individual shall be considered a shareholder if
he owns (with the application of section 318) more than 26 use 318.
10 percent of the value of the stock of the employer.
"(C) CONTRIBUTIONS MUST BEAR A UNIFORM RELATIONSHIP
TO TOTAL COMPENSATION.—For purposes of Subparagraph (A),
employer contributions to simplified employee pensions
shall be considered discriminatory unless contributions
thereto bear a uniform relationship to the total compensa-
tion (not in excess of the first $100,000) of each employee
maintaining a simplified employee pension.
92 STAT. 2798 PUBLIC LAW 95-600—NOV. 6, 1978
"(D) TREATMENT OF CERTAIN CONTRIBUTIONS AND TAXES.—
Except as provided in this subparagraph, employer contribu-
tions do not meet the requirements of this paragraph unless
such contributions meet the requirements of this paragraph
without taking into account contributions or benefits under
26 use 1401. chapter 2 (relating to tax on self-employment income), chap-
26 use 3101. ter 21 (relating to Federal Insurance Contribution Act), title
42 use 401. II of the Social Security Act, or any other Federal or State
26 use 3111. law. Taxes paid under section 3111 (relating to tax on
employers) with respect to an employee may, for purposes of
this paragraph, be taken into account as a contribution by
the employer to an employee's simplified employee pension.
If contributions are made to the simplified employee pension
of an owner-employee, the preceding sentence shall not
apply unless taxes paid by all such owner-employees under
chapter 2, and the taxes which would be payable under
chapter 2 by such owner-employees but for paragraphs (4)
26 use 1402. and (5) of section 1402(c), are taken into account as contribu-
tions by the employer on behalf of such owner-employees.
"(4) WITHDRAWALS MUST BE PERMITTED.—A simplified
employee pension meets the requirements of this paragraph only
if—
"(A) employer contributions thereto are not conditioned
on the retention in such pension of any portion of the
amount contributed, and
"(B) there is no prohibition imposed by the employer on
withdrawals from the simplified employee pension.
"(5) CONTRIBUTIONS MUST BE MADE UNDER WRITTEN ALLOCATION
FORMULA.—The requirements of this paragraph are met with
respect to a simplified employee pension only if employer contri-
butions to such pension are determined under a definite written
allocation formula which specifies—
"(A) the requirements which an employee must satisfy to
share in an allocation, and
"(B) the manner in which the amount allocated is
computed.
"(6) DEFINITIONS.—For purposes of this subsection and subsec-
tion (D—
"(A) EMPLOYEE, EMPLOYER, OR OWNER-EMPLOYEE.—The
terms 'employee', 'employer', and 'owner-employee' shall
have the respective meanings given such terms by section
26 use 401. 401(c).
"(B) COMPENSATION.—The term'compensation'means, in
the case of an employee within the meaning of section
401(c)(1), earned income within the meaning of section
" 401(c)(2).
"(1) SiMPUFiED EMPLOYER REPORTS.—An employer who makes a
contribution on behalf of an employee to a simplified employee
pension shall provide such simplified reports with respect to such
contributions as the Secretary may require by regulations. The
reports required by this subsection shall be filed at such time and in
such manner, and information with respect to such contributions
shall be furnished to the employee at such time and in such manner,
as may be required by regulations."
26 use 219. (c) MAXIMUM DEDUCTION UNDER SECTION 219.—Subsection (b) of
section 219 (relating to maximum deduction in the case of retirement
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2799
savings) is amended by adding at the end thereof the following new
paragraph:
*'(7) SiMPUFiED EMPLOYEE PENSIONS.—In the case of an
employer contribution on behalf of the employee to a simplified
employee pension, paragraph (2) shall not apply with respect to
the employer contribution and the limitation under paragraph
(1) shall be the lesser of—
"(A) 15 percent of compensation includible in the employ-
ee's gross income for the taxable year (determined without
regard to the employer contribution to the simplified
employee pension), or
"(B) the sum of—
"(i) the amount contributed by the employer to the
simplified employee pension and included in gross
income (but not in excess of $7,500), and
"(ii) $1,500, reduced (but not below zero) by the
amount described in clause (i).
In the case of an employee who is an officer, shareholder, or
owner-employee described in section 408(k)(3), the amount 26 USC 408.
referred to in subparagraph (B) shall be reduced by the amount of
tax taken into account with respect to such individual under
subparagraph (D) of section 408(k)(3)."
(d) EMPLOYEES OF ENTERPRISES UNDER COMMON CONTROL.—Subsec-
tions (b) and (c) of section 414 are each amended by inserting "408(k)," 26 use 414.
after "401,".
(e) SIMPLIFIED EMPLOYEE PENSION MAY B E TAKEN INTO ACCOUNT IN
DETERMINING WHETHER EMPLOYER MEETS CERTAIN OTHER NONDIS-
CRIMINATION PROVISIONS.—Paragraph (5) of section 401(a) is amended 26 use 401.
by adding at the end thereof the following new sentence: "For
purposes of determining whether one or more plans of an employer
satisfy the requirements of paragraph (4) and of section 410(b), an 26 use 410.
employer may take into account all simplified employee pensions to
which only the employer contributes."
(f) EMPLOYER DEDUCTIONS.—Section 404 (relating to deduction for 26 use 404.
contributions of an employer) is amended by adding the following
new subsection at the end thereof:
"(h) SPECIAL RULES FOR SIMPUFIED EMPLOYEE PENSIONS.—
"(1) IN GENERAL,—Employer contributions to a simplified
employee pension shall be treated as if they are made to a plein
subject to the requirements of this section. Employer contribu-
tions to a simplified employee pension are subject to the follow-
ing limitations:
"(A) Contributions made for a calendar year are deduct-
ible for the taxable year with which or within which the
calendar year ends.
"(B) Contributions made within dVz months after the close
of a calendar year are treated as if they were made on the
last day of such calendar year if they are made on account of
such calendar year.
"(C) The amount deductible in a taxable year for a simpli-
fied employee pension shall not exceed 15 percent of the
compensation paid to the employees during the calendar
year ending with or within the taxable year. The excess of
the amount contributed over the amount deductible for a
taxable year shall be deductible in the succeeding taxable
years in order of time, subject to the 15 percent limit of the
preceding sentence.
92 STAT. 2800 PUBLIC LAW 95-600—NOV. 6, 1978
"(2) EFFECT ON STOCK BONUS AND PROFIT-SHARING TRUST.—For
any taxable year for which the employer has a deduction under
spbparagraph (1), the otherwise applicable limitations in subsec-
tion (a)(3)(A) shall be reduced by the amount of the allowable
deductions under subparagraph (1) with respect to participants
in the stock bonus or profit-sharing trust.
"(3) EFFECT ON LIMIT ON DEDUCTIONS.—For any taxable year for
which the employer has a deduction under subparagraph (1), the
otherwise applicable 25 percent limitations in subsection (a)(7)
shall be reduced by the amount of the allowable deductions
under subparagraph (1) with respect to participants in the stock
bonus or profit-sharing trust.
"(4) EFFECT ON SELF-EMPLOYED INDIVIDUALS.—The limitations
described in paragraphs (1), (2)(A), and (4) of subsection (e) for any
taxable year shall be reduced by the amount of the allowable
deductions under subparagraph (1) with respect to an employee
26 use 401. within the meaning of section 401(c)(1)."
26 use 415. (g) AMENDMENTS TO SECTION 415.—Section 415 (relating to limita-
tions on benefits and contributions under certain plans) is amended—
(1) by redesignating subparagraphs (E) and (F) of subsection
(a)(2) as subparagraphs (F) and (G) and by inserting after subpar-
agraph (D) the following new subparagraph:
"(E) a simplified employee pension,";
(2) by inserting "408(k)," after "408(b)," in the material imme-
diately following subparagraph (G) of section 415(b)(2);
(3) by inserting "any simplified employee pension," after
"section 408(b)," in section 415(e)(5); and
(4) by striking out "or" in section 415(k)(l)(F), by redesignating
subparagraph (G) of section 415(k)(l) as subparagraph (H), and by
inserting after section 415(k)(l)(F) the following new
subparagraph:
"(G) a simplified employee pension, or".
26 use 408 (h) EFFECTIVE DATE.—The amendments made by this section shall
note. apply to taxable years beginning after December 31,1978.
SEC. 153. DEFINED BENEFIT PLAN LIMITS.
26 use 415. (a) IN GENERAL.—Subsection (b) of section 415 (relating to limita-
tion for defined benefit plans) is amended by adding at the end
thereof the following new paragraph:
"(7) BENEFITS UNDER CERTAIN COLLECTIVELY BARGAINED
PLANS.—For a year, the limitation referred to in paragraph (1)(B)
shall not apply to benefits with respect to a participant under a
defined benefit plan—
"(A) which is maintained for such year pursuant to a
collective bargaining agreement between employee repre-
sentatives and one or more employers,
"(B) which, at all times during such year, has at least 100
participants,
"(C) benefits under which are determined by multiplying a
specified amount (which is the same amount for each partici-
pant) by the number of the participant's years of service,
"(D) which provides that an employee who has at least 4
years of service has a nonforfeitable right to 100 percent of
his accrued benefit derived from employer contributions,
and
"(E) which requires, as a condition of participation in the
plan, that an employee complete a period of not more than
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2801
60 consecutive days of service with the employer or employ-
ers maintaining the plan.
This paragraph shall not apply to a participant whose compensa-
tion for any 3 years during the 10-year period immediately
preceding the year in which he separates from service exceeded
the average compensation for such 3 years of all participants in
such plan. For any year for which the paragraph applies to
benefits with respect to a participant, paragraph (1)(A) and
subsection (d)(1)(A) shall be applied with respect to such partici-
pant by substituting '37,500' for '75,000'."
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 use 415
apply to years beginning after December 31,1978. "ote.
SEC. 154. CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COM-
PANY STOCK.
(a) AMENDMENT OF SECTION 403.—Subparagraph (A) of section
403(b)(7) (relating to custodial accounts for regulated investment 26 USC 403.
company stock) is amended to read as follows:
"(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For pur-
poses of this title, amounts paid by an employer described in
paragraph (1)(A) to a custodial account which satisfied the
requirements of section 401(f)(2) shall be treated as amounts 26 USC 401.
contributed by him for an annuity contract for his employee
if—
"(i) the amounts are to be invested in regulated
investment company stock to be held in that custodial
account, and
"(ii) under the custodial account no such amounts may
be paid or made available to any distributee before the
employee dies, attains age 59 y2, separates from service,
becomes disabled (within the meaning of section
72(m)(7)), or encounters financial hardship." 26 USC 72.
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 403
apply to taxable years beginning after December 31,1978. "o^e.
SEC. 155. PENSION PLAN RESERVES.
(a) I N GENERAL.—Subsection (d) of section 805 (relating to pension 26 USC 805.
plan reserves) is amended—
(1) by striking out "or" at the end of paragraph (4);
(2) by striking out the period at the end of paragraph (5) and
inserting in lieu thereof "; or"; and
(3) by adding at the end thereof the following new paragraph:
"(6) purchased by—
"(A) a governmental plan (within the meaning of section
414(d)), or 26 USC 414.
"(B) the Government of the United States, the government
of any State or political subdivision thereof, or by any agency
or instrumentality of the foregoing, for use in satisfying an
obligation of such government, political subdivision, or
agency or instrumentality to provide a benefit under a plan
described in subparagraph (A)."
Ob) EFFECTIVE DATE.—The amendments made by this section apply 26 USC 805
to taxable years beginning after December 31,1978. "ot^-
SEC. 156. ROLLOVER OF SECTION 403(b) ANNUITIES PERMITTED.
(a) GENERAL RULE.—Subsection (b) of section 403 (relating to 26 USC 403.
taxability of beneficiary under annuity purchased by section 501(c)(3) 26 USC 501.
organization or public school) is amended by adding at the end
thereof the following new paragraph:
92 STAT. 2802 PUBLIC LAW 95-600—NOV. 6, 1978 )
"(8) ROLLOVER AMOUNTS.— ^
"(A) GENERAL RULE.—If—
"(i) the balance to the credit of an employee is paid to
him in a qualifying distribution,
"(ii) the employee transfers any portion of the prop-
erty he receives in such distribution to an individual
retirement plan or to an annuity contract described in
paragraph (1), and
"(iii) in the case of a distribution of property other
than money, the property so transferred consists of the
property distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
"(B) QUALIFYING DISTRIBUTION DEFINED.—
"(i) IN GENERAL.—For purposes of subparagraph (A),
the term 'qualifying distribution' means 1 or more
distributions from an annuity contract described in
paragraph (1) which would constitute a lump sum distri-
26 use 402. bution within the meaning of section 402(e)(4)(A) (deter-
mined without regard to subparagraphs (B) and (H) of
section 402(e)(4)) if such annuity contract were described
in subsection (a).
"(ii) AGGREGATION OF ANNUITY CONTRACTS.—For pur-
poses of this paragraph, all annuity contracts described
in paragraph (1) purchased by an employer shall be
treated as a single contract, and section 402(e)(4)(C) shall
not apply.
"(C) CERTAIN RULES MADE APPUCABLE.—Rules similar to
the rules of subparagraphs (B), (C), and (E)(i) of section
402(a)(5) and of paragraphs (6) and (7) of section 402(a) shall
apply for purposes of subparagraph (A)."
26 use 403. (b) TREATMENT OF ROLLOVER CONTRIBUTIONS.—Section 403(b)(1)
(relating to annuities purchased by certain exempt organizations and
public schools) is amended by adding at the end thereof the following
new sentence: "For purposes of applying the rules of this subsection
to amounts contributed by an employer for a taxable year, amounts
transferred to a contract described in this paragraph by reason of a
rollover contribution described in paragraph (8) of this subsection or
26 use 408, section 408(d)(3)(A)(iii) or 409(d)(3)(C) shall not be considered contrib-
^^^- uted by such employer."
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
26 use 408. (1) Subparagraph (A) of section 408(d)(3) is amended by striking
out "or" at the end of clause (i), by striking out the period at the
end of clause (ii) and inserting in lieu thereof "; or", and by
adding at the end thereof the following new clause:
"(iii)(l) the entire amount received (including money
and other property) represents the entire interest in the
account or the entire value of the annuity,
"(II) no amount in the account and no part of the
value of the annuity is attributable to any source other
than a rollover contribution from an annuity contract
26 use 403. described in section 403(b) and any earnings on such
rollover, and
"(III) the entire amount thereof is paid into another
annuity contract described in section 4030t)) (for the
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2803
benefit of such individual) not later than the 60th day
after he receives the payment or distribution."
(2) Subparagraph (C) of section 409(b)(3) is amended— 26 u s e 409.
(A) by striking out "or an annuity plan described in section
403(a)" in the first sentence and inserting in lieu thereof "an 26 u s e 403.
annuity plan described in section 403(a), or an annuity
contract described in section 403(b)", and
(B) by adding at the end thereof the following new sen-
tence: This subparagraph does not apply in the case of a
transfer to an annuity contract described in section 403(b)
unless no part of the value of such proceeds is attributable to
any source other than a rollover contribution from such an
annuity contract."
(3) Sections 219(b)(4), 220(b)(5), 408(a)(1), 409(a)(4), and 26 u s e 219,
4973(b)(1)(A) are each amended by inserting "403(b)(8)," after 220, 408, 409,
"403(a)(4)," each place it appears. 4973.
(4) Section 2039(e) is amended by inserting after "403(a)(4)," the 26 u s e 2039.
following: "section 403(b)(8) (but only to the extent such contribu-
tion is attributable to a distribution from a contract described in
subsection (c)(3)),".
(5) Section 4973(c)(1) is amended by inserting after "account" 26 u s e 4973.
the following: "(other than a rollover contribution described in
section 403(b)(8), 408(d)(3)(A)(iii), or 409(d)(3)(C))".
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 u s e 403
apply to distributions or transfers made after December 31,1978, in note.
taxable years beginning after such date.
SEC. 157. INDIVIDUAL RETIREMENT ACCOUNT TECHNICAL CHANGES.
(a) EXTENSION OF PERIOD FOR MAKING INDIVIDUAL RETIREMENT
PLAN CONTRIBUTIONS.—
(1) AMENDMENT OF SECTION 219(C)(3).—Paragraph (3) of section 26 u s e 219.
219(c) (relating to time when contributions deemed made in the
case of retirement savings) is amended by striking out "not later
than 45 days after the end of such taxable year" and inserting in
lieu thereof "not later than the time prescribed by law for filing
the return for such taxable year (including extensions thereof)'.
(2) AMENDMENT OF SECTION 220(c)(4).—Paragraph (4) of section 26 use 220.
220(c) (relating to time when contributions deemed made in the
case of retirement savings for certain married individuals) is
amended by striking out "not later than 45 days after the end of
such taxable year" and inserting in lieu thereof "not later than
the time prescribed by law for filing the return for such taxable
year (including extensions thereof)".
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 u s e 219
shall apply to taxable years beginning after December 31, 1977. note.
(b) EXCESS CONTRIBUTIONS MAY B E DEDUCTED IN SUBSEQUENT YEAR
FOR WHICH THERE IS AN UNUSED LIMITATION.—
(1) AMENDMENT OF SECTION 219.—Subsection (c) of section 219 26 use 219
(relating to definitions and special rules for retirement savings)
is amended by adding at the end thereof the following new
paragraph:
"(5) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE
DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED
LIMITATION.—
"(A) I N GENERAL.—If for the taxable year the maximum
amount allowable as a deduction under this section exceeds
the amount contributed, then the taxpayer shall be treated
92 STAT. 2804 PUBLIC LAW 95-600—NOV. 6, 1978
as having made an additional contribution for the taxable
year in an amount equal to the lesser of—
"(i) the amount of such excess, or
"(ii) the amount of the excess contributions for such
26 use 4973. taxable year (determined under section 4973(b)(2) with-
out regard to subparagraph (C) thereof).
"(B) AMOUNT CONTRIBUTED.—For purposes of this para-
graph, the amount contributed—
"(i) shall be determined without regard to this para-
graph, and
"(ii) shall not include any rollover contribution.
"(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED
FOR CLOSED YEAR.—Proper reduction shall be made in the
amount allowable as a deduction by reason of this paragraph
for any amount allowed as a deduction under this section or
Infra. section 220 for a prior taxable year for which the period for
assessing deficiency has expired if the amount so allowed
exceeds the amount which should have been allowed for such
prior taxable year."
26 use 220. (2) AMENDMENT OF SECTION 220.—Subsection (c) of section 220
(relating to definitions and special rules for retirement savings
for certain married individuals) is amended by adding at the end
thereof the following new paragraph:
"(6) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE
DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITA-
TION.—
"(A) I N GENERAL.—If for the taxable year the maximum
amount allowable as a deduction under this section exceeds
the amount contributed, then the taxpayer shall be treated
as having made an additional contribution for the taxable
year in an amount equal to the lesser of—
"(i) the amount of such excess, or
"(ii) the amount of the excess contributions for such
taxable year (determined under section 4973(b)(2) with-
out regard to subparagraph (C) thereof).
,i "(B) AMOUNT CONTRIBUTED.—For purposes of this para-
graph, the amount contributed—
"(i) shall be determined without regard to this para-
graph, and
"(ii) shall not include any rollover contribution.
"(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED
FOR CLOSED YEAR.—Proper reduction shall be made in the
amount allowable as a deduction by reason of this paragraph
for any amount allowed as a deduction under this section or
Ante, p. 2803. section 219 for a prior taxable year for which the period for
assessing a deficiency has expired if the amount so allowed
exceeds the amount which should have been allowed for such
prior taxable year."
26 use 4973. (3) AMENDMENT OF SECTION 4973.—Paragraph (2) of section
4973(b) (defining excess contributions) is amended to read as
follows:
"(2) the amount determined under this subsection for the
preceding taxable year reduced by the sum of—
"(A) the distributions out of the account for the taxable
year which were included in the gross income of the payee
26 use 408. under section 408(d)(1),
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2805
"(B) the distributions out of the account for the taxable
year to which section 408(d)(5) applies, and 26 use 408.
"(C) the excess (if any) of the maximum amount allowable
as a deduction under section 219 or 220 for the taxable year ^^^e, pp. 2803,
over the amount contributed (determined without regard to ^^^'*-
sections 219(cX5) and 220(c)(6)) to the accounts or for the
annuities or bonds for the taxable year."
(4) EFFECTIVE DATE.— 26 u s e 219
(A) I N GENERAL.—The amendments made by this subsec- "°*^-
tion shall apply to the determination of deductions for
taxable years beginning after December 31,1975.
(B) TRANSITIONAL RULE.—If, but for this subparagraph, an
amount would be allowable as a deduction by reason of
section 219(cX5) or 220(c)(6) of the Internal Revenue Code of
1954 for a taxable year beginning before January 1, 1978,
such amount shall be allowable only for the taxpayer's first
taxable year beginning in 1978.
(c) ADDITIONAL PERIOD TO RECTIFY CERTAIN EXCESS CONTRIBU-
TIONS.—
(1) GENERAL RULE.—Subsection (d) of section 408 (relating to 26 use 408.
tax treatment of distributions) is amended by redesignating
paragraph (5) as paragraph (6) and by inserting after paragraph
(4) the following new paragraph:
"(5) CERTAIN DISTRIBUTIONS OF EXCESS CONTRIBUTIONS AFTER
DUE DATE FOR TAXABLE YEAR.—
"(A) I N GENERAL.—In the case of any individual, if the
aggregate contributions (other than rollover contributions)
paid for any taxable year to an individual retirement
account or for an individual retirement annuity do not
exceed $1,750, paragraph (1) shall not apply to the distribu-
tion of any such contribution to the extent that such contri-
bution exceeds the amount allowable as a deduction under
section 219 or 220 for the taxable year for which the
contribution was paid—
"(i) if such distribution is received after the date
described in paragraph (4),
"(ii) but only to the extent that no deduction has been
allowed under section 219 or 220 with respect to such
excess contribution.
"(B) EXCESS ROLLOVER CONTRIBUTIONS ATTRIBUTABLE TO ERRO-
NEOUS INFORMATION.—If—
"(i) the taxpayer reasonably relies on information
supplied pursuant to subtitle F for determining the
amount of a rollover contribution, but
"(ii) such information was erroneous, subparagraph
(A) shall be applied by increasing the dollar limit set
forth therein by that portion of the excess contribution
which was attributable to such information."
(2) EFFECTIVE DATE.— 26 use 408
(A) IN GENERAL.—The amendments made by paragraph (1) "ote.
shall apply to distributions in taxable years beginning after
December 31,1975.
(B) TRANSITIONAL RULE.—In the case of contributions for
taxable years beginning before January 1, 1978, paragraph
(5) of section 408(d) of the Internal Revenue Code of 1954 Supra.
shall be applied as if such paragraph did not contain any
dollar limitation.
92 STAT. 2806 PUBLIC LAW 95-600—NOV. 6, 1978
(d) REQUIREMENT THAT ANNUITY CONTRACTS WILL QUALIFY AS
INDIVIDUAL RETIREMENT ANNUITY ONLY IF THE PREMIUMS ARE
FLEXIBLE.—
26 use 408. (1) I N GENERAL.—Paragraph (2) of section 408(b) (defining
individual retirement annuity) is amended to read as follows:
"(2) Under the contract—
"(A) the premiums are not fixed,
"(B) the annual premium will not exceed $1,500, and
"(C) any refund of premiums will be applied before the
close of the calendar year following the year of the refund
toward the payment of future premiums or the purchase of
additional benefits."
26 use 408 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
"ot^- shall apply to contracts issued after the date of the enactment of
this Act.
26 use 408 (3) TAX REUEF FOR FIXED PREMIUM CONTRACTS HERETOFORE
not^- ISSUED.—In the case of any annuity or endowment contract
issued on or before the date of the enactment of this Act which
would be an individual retirement annuity within the meaning
of section 408(b) of the Internal Revenue Code of 1954 (as
amended by paragraph (1)) but for the fact that the premiums
c under the contract are fixed, at the election of the taxpayer an
exchange before January 1,1981, of that contract for an individual
retirement annuity within the meaning of such section 408(b)
(as amended by paragraph (1)) shall be treated as a nontaxable
exchange which does not constitute a distribution.
(e) CLARIFICATION OF DOLLAR LIMIT IN THE CASE OF INDIVIDUAL
RETIREMENT ANNUITIES AND RETIREMENT BONDS.—
(1) I N GENERAL.—
(A) AMENDMENT OF SECTION 408(b)(2).—Subparagraph (B)
of section 408(b)(2) (as amended by paragraph (1) of subsec-
tion (d)) is amended by inserting "on behalf of any
individual" after "annual premium".
26 use 409. (B) AMENDMENT OF SECTION 409(a)(4).—Paragraph (4) of
section 409(a) (relating to retirement bonds) is amended by
inserting "on behalf of any individual" after "May not
contribute".
26 use 408 (2) EFFECTIVE DATE.—The amendments made by paragraph (1)
"ote. shall apply to taxable years beginning after December 31, 1976.
26 use 402. (f) ROLLOVER OF PROCEEDS FROM SALE OF PROPERTY PERMITTED,—
(1) ROLLOVERS FROM QUAUFIED EMPLOYEES' TRUSTS AND ANNU-
ITIES.—Paragraph (6) of section 402(a) (relating to special rollover
rules) is amended by adding at the end thereof the following new
subparagraph:
"(D) SALES OF DISTRIBUTED PROPERTY.—For purposes of
subparagraphs (5) and (7)—
"(i) TRANSFER OF PROCEEDS FROM SALE OF DISTRIBUTED
PROPERTY TREATED AS TRANSFER OF DISTRIBUTED PROP-
ERTY,—The transfer of an amount equal to any portion
of the proceeds from the sale of property received in the
distribution shall be treated as the transfer of property
s ; received in the distribution.
"(ii) PROCEEDS ATTRIBUTABLE TO INCREASE IN VALUE.—
The excess of fair market value of property on sale over
its fair market value on distribution shall be treated as
property received in the distribution.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2807
"(iii) DESIGNATION WHERE AMOUNT OF DISTRIBUTION
EXCEEDS ROLLOVER CONTRIBUTION.—In any CESG whcre
part or all of the distribution consists of property other
than money, the taxpayer many designate—
"(I) the portion of the money or other property
which is to be treated as attributable to employee
contributions, and
"(11) the portion of the money or other property
which is to be treated as included in the rollover
contribution.
Any designation under this clause for a taxable year
shall be made not later than the time prescribed by law
for filing the return for such taxable year (including
extensions thereof). Any such designation, once made,
shall be irrevocable.
"(iv) TREATMENT WHERE NO DESIGNATION.—In any
case where part or all of the distribution consists of
property other than money and the taxpayer fails to
make a designation under clause (iii) within the time
provided therein, then—
"(I) the portion of the money or other property
which is to be treated as attributable to employee
contributions, and
"(II) the portion of the money or other property
which is to be treated as included in the rollover
contribution
shall be determined on a ratable basis.
"(v) NONRECOGNITION OF GAIN OR LOSS.—In the case of
any sale described in clause (i), to the extent that an
amount equal to the proceeds is transferred pursuant to
paragraph (5)(B) or (7XB) (as the case by be), neither gain
nor loss on such sale shall be recognized."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 402
shall apply to qualifying rollover distributions (as defined in "o*^-
section 402(a)(5)(D)(i) of the Internal Revenue Code of 1954) Ante, p. 2806.
completed after December 31,1978, in taxable years ending after
such date,
(g) DISTRIBUTION FROM EMPLOYEES' QUALIFIED PLAN OR ANNUITY TO
SPOUSE MAY B E ROLLOVER CONTRIBUTION TO AN INDIVIDUAL RETIRE-
MENT PLAN.—
(1) ROLLOVERS FROM QUALIFIED EMPLOYEES' TRUST.—Subsection 26 use 402.
(a) of section 402 (relating to taxability of beneficiary of exempt
trust) is amended by adding at the end thereof the following new
paragraph:
"(7) ROLLOVER WHERE SPOUSE RECEIVES LUMP-SUM DISTRIBUTION
AT DEATH OF EMPLOYEE.—
"(A) GENERAL RULE.—If—
"(i) any portion of a lump-sum distribution from a
qualified trust is paid to the spouse of the employee on
account of the employee's death,
"(ii) the spouse transfers any portion of the property
which the spouse receives in such distribution to an
individual retirement plan, and
"(iii) in the case of a distribution of property other
than money, the amount so transferred consists of the
property distributed,
92 STAT. 2808 PUBLIC LAW 95-600—NOV. 6, 1978
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
"(B) CERTAIN RULES MADE APPLICABLE.—Rules similar to
the rules of subparagraphs (B) through (E) of paragraph (5)
and of paragraph (6) shall apply for purposes of this
paragraph."
26 use 403. (2) ROLLOVER FROM QUALIFIED ANNUITY PLANS.—Subparagraph
(B) of section 403(a)(4), as amended by section 21(b), is amended
by striking out "paragraph (6)" and inserting lieu thereof "para-
graphs (6) and (7)".
26 u s e 408. (3) N o ROLLOVER TO QUALIFIED PLAN OR ANNUITY FROM IRA TO
WHICH SPOUSE MADE ROLLOVER CONTRIBUTION.—Subparagraph (B)
of section 408(d)(3) is amended by adding at the end thereof the
following: "Clause (ii) of subparagraph (A) shall not apply to any
amount paid or distributed out of an individual retirement
account or an individual retirement annuity to which an amount
was contributed which was treated as a rollover contribution by
Ante, p. 2807. section 402(a)(7) (or in the case of an individual retirement
26 use 403. annuity, such section as made applicable by section 403(a)(4)(B))."
26 use 402 (4) EFFECTIVE DATE.—The amendments made by this subsection
"°^^- shall apply to lump-sum distributions completed after Decem-
ber 31,1978, in taxable years ending after such date.
Ante, p. 2806. (h) REMOVAL OF CERTAIN REQUIREMENTS.—
(1) DISREGARD OF 5-YEAR MINIMUM PARTICIPATION RULE FOR
PURPOSES OF ROLLOVERS.—Subclause (II) of section 402(a)(5)(D)(i)
is amended by striking out "subsection (e)(4)(B)" and inserting in
lieu thereof "subparagraphs (B) and (H) of subsection (e)(4)".
26 use 408. (2) REDUCTION OF REQUIRED PERIOD BETWEEN ROLLOVER CONTRI-
BUTIONS FROM 3 YEARS TO 1 YEAR.—The first Sentence of subpara-
graph (B) of section 408(d)(3) is amended by striking out "3-year
period" and inserting in lieu thereof "1-year period".
26 use 402 (3) EFFECTIVE DATE.—
^^^^- (A) I N GENERAL.—The amendments made by this section
shall apply to payments made in taxable years beginning
after December 31,1977.
(B) TRANSITIONAL RULE.—In the case of any payment
which is described in section 402(a)(5)(A) or 403(a)(4)(A) of the
26 use 402, Internal Revenue Code of 1954 by reason of the amendments
403 made by this section, the applicable period specified in
section 402(a)(5)(C) of such Code (or in the case of an
individual retirement annuity, such section as made applica-
ble by section 403(a)(4)(B) of such Code) shall not expire
before the close of December 31,1978.
(i) WAIVER OF EXCISE TAX ON CERTAIN ACCUMULATIONS IN INDIVID-
UAL RETIREMENT ACCOUNTS OR ANNUITIES.—
26 use 4974. (1) GENERAL RULE.—Section 4974 (relating to excise tax on
certain accumulations in individual retirement accounts or
annuities) is amended by adding at the end thereof the following
new subsection:
"(c) WAIVER OF TAX IN CERTAIN CASES.—If the taxpayer establishes
to the satisfaction of the Secretary that—
"(1) the shortfall described in subsection (a) in the amount
distributed during any taxable year was due to reasonable error,
and
"(2) reasonable steps are being taken to remedy the shortfall,
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2809
the Secretary may waive the tax imposed by subsection (a) for the
taxable year."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 u s e 4974
shall apply to taxable years beginning after December 31, 1975. note.
(j) REMOVAL OF CERTAIN LIMITATIONS ON PROVISION ALLOWING
CORRECTION OF EXCESS CONTRIBUTIONS.—
(1) GENERAL RULE.—The last sentence of section 4973(b) (defin- 26 u s e 4973.
ing excess contributions) is amended to read as follows: "For
purposes of this subsection, any contribution which is distributed
from the individual retirement account, individual retirement
annuity, or bond in a distribution to which section 408(d)(4) 26 u s e 408.
applies shall be treated as an amount not contributed."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 u s e 4973
shall apply to contributions made for taxable years beginning note.
after December 31,1977.
(k) SIMPLIFICATION OF RETURN REQUIREMENTS WITH RESPECT TO
INDIVIDUAL RETIREMENT PLANS.—
(1) I N GENERAL.—Section 6058 (relating to information 26 u s e 6058.
required in connection with certain plans of deferred compensa-
tion) is amended by redesignating subsection (d) as subsection (f)
and by striking out subsection (c) and inserting in lieu thereof the
following new subsections.
"(c) EMPLOYER.—For purposes of this section, the term 'employer*
includes a person described in section 401(c)(4) and an individual who 26 u s e 401.
establishes an individual retirement plan.
"(d) COORDINATION WITH INCOME TAX RETURNS, ETC.—An individ-
ual who establishes an individual retirement plan shall not be
required to file a return under this section with respect to such plan
for any taxable year for which there is—
"(1) no special IRP tax, and
"(2) no plan activity other than—
"(A) the making of contributions (other than rollover
contributions), and
"(B) the making of distributions.
"(e) SPECIAL IRP TAX DEFINED.—For purposes of this section, the
term 'special IRP tax' means a tax imposed by—
"(1) section 408(f), 26 use 408.
"(2) section 409(c), 26 use 4090.
"(3) section 4973, or 26 use 4973.
"(4) section 4974.". 26 use 4974.
(2) INDIVIDUAL RETIREMENT PLAN DEFINED.—Subsection (a) of
section 7701 (relating to definitions of general application 26 u s e 7701.
throughout the Code) is amended by adding at the end thereof
the following new paragraph:
"(37) INDIVIDUAL RETIREMENT PLAN.—The term 'individual
retirement plan' means—
"(A) an individual retirement account described in section
408(a), 26 u s e 408.
"(B) an individual retirement annuity described in section
408(b), and
"(C) a retirement bond described in section 409." 26 u s e 409.
(3) EFFECTIVE DATE.—The amendments made by paragraph (1) 26 use 6058
shall apply to returns for taxable years beginning after Decem- note.
ber 31,1977. The amendment made by paragraph (2) shall apply
to taxable years beginning after December 31,1974.
39-194 O - -pt. 3 12 : QL3
92 STAT. 2810 PUBLIC LAW 95-600—NOV. 6, 1978
Subtitle F—Other Individual Items
SEC. 161. CERTAIN GOVERNMENT SCHOLARSHIP AND AWARD PRO-
GRAMS,
(a) GOVERNMENT HEALTH PROFESSION SCHOLARSHIP PROGRAMS.—
Subsection (c) of section 4 of the Act entitled "An Act to suspend until
the close of June 30, 1975, the dutv on certain carboxymethyl
cellulose salts, and for other purposes (Public Law 93-483; 88 Stat.
26 u s e 117 1457) approved October 26,1974, is amended—
note. (1) by striking out "1979" and inserting in lieu thereof "1980",
and
(2) by striking out "1983" and inserting in lieu thereof "1984".
26 u s e 117 (b) NATIONAL RESEARCH SERVICE AWARDS.—
Bote. (1) GENERAL RULE.—Any amount paid to, or on behalf of, an
individual from appropriated funds as a national research serv-
42 u s e 289/--1 ice award under section 472 of the Public Health Service Act
shall be treated as a scholarship or fellowship grant under
26 u s e 117. section 117 of the Internal Revenue Code of 1954.
(2) EFFECTIVE DATE.—The provisions of subsection (b) shall
apply to awards made during calendar years 1974 through 1979.
SEC. 162. CANCELLATION OF STUDENT LOANS.
26 use 61 note. Subsection (c) of section 2117 of the Tax Reform Act of 1976
(relating to cancellation of certain student loans) is amended by
striking out "Janu- ary 1,1979" and inserting in lieu thereof "Janu-
ary 1,1983".
SEC. 163. TAX COUNSELING FOR THE ELDERLY.
26 use 7803 (a) TRAINING AND TECHNICAL ASSISTANCE.—
"o*^- (1) AGREEMENTS.—The Secretary, through the Internal Reve-
nue Service, is authorized to enter into agreements with private
or public nonprofit agencies or organizations for the purpose of
providing training and technical assistance to prepare volun-
teers to provide tax counseling assistance for elderly individuals
in the preparation of their Federal income tax returns.
(2) OTHER ASSISTANCE.—In addition to any other forms of
technical assistance provided under this section, the Secretary
may provide—
(A) preferential access to Internal Revenue Service tax-
payer service representatives for the purpose of making
available technical information needed during the course of
the volunteers'work;
(B) material to be used in making elderly persons aware of
the availability of assistance under volunteer taxpayer
assistance programs under this section; and
(C) technical materials and publications to be used by such
volunteers.
(b) POWERS OF THE SECRETARY.—In carrying out his responsibilities
'' under this section, the Secretary is authorized—
(1) to provide assistance to organizations which demonstrate,
to the satisfaction of the Secretary, that their volunteers are
adequately trained and competent to render effective tax coun-
seling to the elderly;
(2) to provide for the training of such volunteers, and to assist
in such training, to insure that such volunteers are qualified to
provide tax counseling assistance to elderly individuals;
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2811
(3) to provide reimbursement to volunteers through such
organizations for transportation, meals, and other expenses
incurred by them in training or providing tax counseling assist-
ance under this section, and such other support and assistance as
he determines to be appropriate in carrying out the provisions of
this section;
(4) to provide for the use of services, personnel, and facilities of
Federal executive agencies and of State and local public agencies
with their consent, with or without reimbursement therefor; and
(5) to prescribe such rules and regulations as he deems neces- Rules and
sary to carry out the provisions of this section. regulations.
(c) EMPLOYMENT OF VOLUNTEERS.—
(1) IN GENERAL.—Service as a volunteer in any program carried
out under this section shall not be considered service as an
employee of the United States. Volunteers under such a program
shall not be considered Federal employees and shall not be
subject to the provisions of law relating to Federal employment,
except that the provisions of section 1905 of title 18, United
States Code, shall apply to volunteers as if they were employees
of the United States.
(2) EXPENSES.—Amounts received by volunteers serving in any
program carried out under this section as reimbursement for
expenses are exempt from taxation under chapters 1 and 21 of
the Internal Revenue Code of 1954. 26 USC 1 et seq.,
(d) PUBLICITY RELATING TO INCOME TAX PROVISIONS PARTICULARLY 3101 e< seq.
IMPORTANT TO THE ELDERLY.—The Secretary shall, from time to time,
undertake to direct the attention of elderly individuals to those
provisions of the Internal Revenue Code of 1954 which are particu-
larly important to taxpayers who are elderly individuals, such as the
provisions of section 37 (relating to credit for the elderly) and section
121 (relating to one-time exclusion of gain from sale of principal
residence) of the Internal Revenue Code of 1954, 26 USC 37,121.
(e) DEFINITIONS.—For purposes of this section—
(1) The term "Secretary" means the Secretary of the Treasury
or his delegate.
(2) The term "elderly individual" means an individual who has
attained the age of 60 years as of the close of his taxable year.
(3) The term "Federal income tax return" means any return
required under chapter 61 of the Internal Revenue Code of 1954 26 USC 6001 et
with respect to the tax imposed on an individual under chapter 1 ^^q-
of s u c h Code. 26 USC l et seq.
(f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be
appropriated for the purpose of carrying out the provisions of this
section $2,500,000 for the fiscal year ending September 30, 1979, and
$3,500,000 for the fiscal year ending September 30,1980.
SEC. 164. EXCLUSION OF VALUE OF CERTAIN EDUCATIONAL ASSISTANCE
PROGRAMS.
(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by redesig-
nating section 127 as 128 and by inserting after section 126 the 26 USC 128.
following new section:
"SEC. 127. EDUCATIONAL ASSISTANCE PROGRAMS. 26 USC 127.
"(a) GENERAL RULE,—Gross income of an employee does not include
amounts paid or expenses incurred by the employer for educational
assistance to the employee if the assistance is furnished pursuant to a
program which is described in subsection (b).
92 STAT. 2812 PUBLIC LAW 95-600—NOV. 6, 1978
"(b) EDUCATIONAL ASSISTANCE PROGRAM.—
"(1) IN GENERAL.—For purposes of this section an educational
assistance program is a separate written plan of an employer for
the exclusive benefit of his employees to provide such employees
with educational assistance. The program must meet the require-
ments of paragraphs (2) through (6) of this subsection.
"(2) ELIGIBILITY.—The program shall benefit employees who
qualify under a classification set up by the employer and found
by the Secretary not to be discriminatory in favor of employees
who are officers, owners, or highly compensated, or their depend-
ents. For purposes of this paragraph, there shall be excluded
from consideration employees not included in the program who
are included in a unit of employees covered by an agreement
which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more
employers, if there is evidence that educational assistance bene-
fits were the subject of good faith bargaining between such
employee representatives and such employer or employers.
"(3) PRINCIPAL SHAREHOLDERS OR OWNERS.—Not more than 5
percent of the amounts paid or incurred by the employer for
educational assistance during the year may be provided for the
class of individuals who are shareholders or owners (or their
spouses or dependents), each of whom (on any day of the year)
owns more than 5 percent of the stock or of the capital or profits
interest in the employer.
"(4) OTHER BENEFITS AS AN ALTERNATIVE.—A program must not
provide eligible employees with a choice between educational
assistance and other remuneration includible in gross income.
For purposes of this section, the business practices of the
employer (as well as the written program) will be taken into
account.
"(5) No FUNDING REQUIRED.—A program referred to in para-
graph (1) is not required to be funded.
"(6) NOTIFICATION OF EMPLOYEES.—Reasonable notification of
the availability and terms of the program must be provided to
eligible employees.
"(c) DEFINITIONS; SPECIAL RULES.—For purposes of this section—
"(1) EDUCATIONAL ASSISTANCE.—The term 'educational assist-
ance' means—
. "(A) the payment, by an employer, of expenses incurred by
or on behalf of an employee for education of the employee
(including, but not limited to, tuition, fees, and similar
payments, books, supplies, and equipment), and
"(B) the provision, by an employer, of courses of instruc-
tion for such employee (including books, supplies, and equip-
ment),
but does not include payment for, or the provision of, tools or
supplies which may be retained by the employee after comple-
tion of a course of instruction, or meals, lodging, or transporta-
tion. The term 'educational assistance' also does not include any
payment for, or the provision of any benefits with respect to, any
course or other education involving sports, games, or hobbies.
"(2) EMPLOYEE.—The term 'employee' includes, for any year,
an individual who is an employee within the meaning of section
401(c)(l)(relating to self-employed individuals).
"(3) EMPLOYER.—An individual who owns the entire interest in
an unincorporated trade or business shall be treated as his own
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2813
employer. A partnership shall be treated as the employer of each
partner who is an employee within the meaning of paragraph (2).
"(4) ATTRIBUTION RULES.—
"(A) OWNERSHIP OF STOCK.—Ownership of stock in a corpo-
ration shall be determined in accordance with the rules
provided under subsections (d) and (e) of section 1563 (with- 26 USC 1.563.
out regard to section 1563(e)(3)(C)).
"(B) INTEREST IN UNINCORPORATED TRADE OR BUSINESS.—
The interest of an employee in a trade or business which is
not incorporated shall be determined in accordance with
regulations prescribed by the Secretary, which shall be
based on principles similar to the principles which apply in
the case of subparagraph (A).
"(5) CERTAIN TESTS NOT APPLICABLE.—An educational assist-
ance program shall not be held or considered to fail to meet any
requirements of subsection (b) merely because—
"(A) of utilization rates for the different types of educa-
tional assistance made available under the program; or
"(B) successful completion, or attaining a particular
course grade, is required for or considered in determining
reimbursement under the program.
"(6) RELATIONSHIP TO CURRENT LAW.—This section shall not be
construed to affect the deduction or inclusion in income of '
amounts (not within the exclusion under this section) which are
paid or incurred, or received as reimbursement, for educational
expenses under section 117,162 or 212. 26 USC 117,
"(7) DISALLOWANCE OF EXCLUDED AMOUNTS AS CREDIT OR DEDUC- 162, 212.
TION.—No deduction or credit shall be allowed under any other
section of this chapter for any amount excluded from income by
reason of this section.
"(d) TERMINATION.—This section shall not apply to taxable years
beginning after December 31,1983."
(b) TREATMENT OF EMPLOYER EDUCATIONAL ASSISTANCE BENEFITS
FOR PURPOSES OF WITHHOLDING, UNEMPLOYMENT TAXES, AND SOCIAL
SKCTTRITY TAXFS
(1) Section 3401(a) (relating to the definition of wages for 26 USC 3401.
purposes of collection of income tax at the source) is amended—
(A) by striking out "or" at the end of paragraph (16);
(B) by striking out the period at the end of paragraph (17);
and
(C) by adding at the end thereof the following new para-
graph:
"(18) for any payment made, or benefit furnished, to or for the
benefit of an employee if at the time of such payment or such
furnishing it is reasonable to believe that the employee will be
able to exclude such payment or benefit from income under
section 124.". 26 USC 124.
(2) Section 3306(b) (relating to the definition of wages for 26 USC 3306.
purposes of the Federal Unemployment Tax Act) is amended—
(A) by striking out "or" at the end of paragraph (11);
(B) by striking out the period at the end of paragraph (12)
and inserting in lieu thereof "; or"; and
(C) by adding at the end thereof the following new para-
graph:
"(13) any payment made, or benefit furnished, to or for the
benefit of an employee if at the time of such payment or such
furnishing it is reasonable to believe that the employee will be
92 STAT. 2814 PUBLIC LAW 95-600—NOV. 6, 1978
able to exclude such payment or benefit from income under
Ante, p. 2811. section 127.".
26 use 3121. (3) Section 3121(a) (relating to the definition of wages for
purposes of the Federal Insurance Contributions Act) is
amended—
(A) by striking out "or" at the end of paragraph (16);
(B) by striking out the period at the end of subparagraph
(17) and inserting in lieu thereof "; or"; and
(C) by adding at the end thereof the following new para-
graph:
"(18) any payment made, or benefit furnished, to or for the
benefit of an employee if at the time of such payment or such
furnishing it is reasonable to believe that the employee will be
able to exclude such payment or benefit from income under
section 127.".
42 use 409. (4) Section 209 of the Social Security Act is amended—
(A) by striking out "or" at the end of subsection (o);
(B) by striking out the period at the end of subsection (p)
and inserting in lieu thereof "; or"; and
(C) by inserting after subsection (p) and before the sen-
tence beginning with "For purposes of this title, in the case
of domestic service" the following new subsection:
"(q) Any payment made, or benefit furnished, to or for the benefit
of an employee if at the time of such payment or such furnishing it is
reasonable to believe that the employee will be able to exclude such
payment or benefit from income under section 127 of the Internal
Revenue Code of 1954."
(c) CLERICAL AMENDMENT.—The table of sections for such part is
amended by striking out the item relating to section 124 and
inserting in lieu thereof the following:
"Sec. 124. Educational assistance programs.
"Sec. 125. Cross references to other Acts.".
26 use 127 (d) EFFECTIVE DATE.—The amendments made by this section shall
note. apply with respect to taxable years beginning after December 31,
1978.
TITLE II—TAX SHELTER PROVISIONS
Subtitle A—Provisions Related To At Risk
Rules
SEC. 201. EXTENSION OF SECTION 465 AT RISK RULES TO ALL ACTIVI-
TIES OTHER THAN REAL ESTATE.
26 use 465. (a) EXTENSION.—Subsection (c) of section 465 (relating to activities
to which section applies) is amended by adding at the end thereof the
following new paragraph:
"(3) EXTENSION TO OTHER ACTIVITIES.—
"(A) IN GENERAL.—In the case of taxable years beginning
after December 31, 1978, this section also applies to each
activity—
"(i) engaged in by the taxpayer in carrying on a trade
or business or for the production of income, and
"(ii) which is not described in paragraph (1).
"(B) AGGREGATION OF ACTIVITIES WHERE TAXPAYER
ACTIVELY PARTICIPATES IN MANAGEMENT OF TRADE OR BUSI-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2815
NESS.—Except as provided in subparagraph (C), for purposes
of this section, activities described in subparagraph (A)
which constitute a trade or business shall be treated as one
activity if—
"(i) the taxpayer actively participates in the manage-
ment of such trade or business, or
"(ii) such trade or business is carried on by a partner-
ship or electing small business corporation (as defined in
section 1371(b)) and 65 percent or more of the losses for 26 USC 1371.
the taxable year is allocable to persons who actively
participate in the management of the trade or business.
"(C) AGGREGATION OR SEPARATION OF ACTIVITIES UNDER-
REGULATiONS.—The Secretary shall prescribe regulations Regulations,
under which activities described in subparagraph (A) shall
be aggregated or treated as separate activities.
"(D) EXCLUSIONS.—
"(i) REAL PROPERTY.—In the case of activities
described in subparagraph (A), the holding of real prop-
erty (other than mineral property) shall be treated as a
separate activity, and subsection (a) shall not apply to
losses from such activity. For purposes of the preceding
sentence, personal property and services which are
incidental to making real property available as living
accommodations shall be treated as part of the activity
of holding such real property.
"(ii) EQUIPMENT LEASING BY CLOSELY-HELD CORPORA-
TIONS.—
"(I) In the case of a corporation described in
subsection (a)(1)(C) actively engaged in leasing
equipment which is section 1245 property, the activ- 26 USC 1245.
ity of leasing such equipment shall be treated, for
purposes of subsection (a), as a separate activity and
subsection (a) shall not apply to losses from such
activity.
"(II) A corporation described in subsection (a)(1)
(C) shall not be considered to be actively engaged in
leasing such equipment unless 50 percent or more of
the gross receipts of the corporation for the taxable
year are attributable, under regulations prescribed
by the Secretary, to leasing and selling such equip-
ment.
"(Ill) For purposes of this paragraph, the leasing
of master sound recordings, and other similar con-
tractual arrangements with respect to tangible or
intangible assets associated with literary, artistic,
or musical properties shall not be treated as leasing
equipment which is section 1245 property.
"(IV) In the case of a controlled group of corpora-
tions (within the meaning of section 1563(a)), this 26 USC 1563.
paragraph shall be applied by treating the con-
trolled group as a single corporation.
"(E) APPLICATION OF SUBSECTION 0D)(3).—In the case of an
activity described in subparagraph (A), subsection (b)(3) shall
apply only to the extent provided in regulations prescribed
by the Secretary."
(b) REPEAL OF SECTION 704(d) AT RISK RULES.—
92 STAT. 2816 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 704. (1) IN GENERAL.—Subsection (d) of section 704 is amended by
striking out the last 2 sentences.
26 use 704 (2) TRANSITIONAL RULE.—In the case of a loss which was not
""^^- allowed for any taxable year by reason of the last 2 sentences of
section 704(d) of the Internal Revenue Code of 1954 (as in effect
before the date of the enactment of this Act), such loss shall be
Infra. treated as a deduction (subject to section 465(a) of such Code) for
the first taxable year beginning after December 31,1978. Section
465(a) of such Code (as amended by this section) shall not apply
with respect to partnership liabilities to which the last 2 sen-
tences of section 704(d) of such Code (as in effect on the day before
the date of enactment of this Act) did not apply because of the
26 use 709 provisions of section 213(f)(2) of the Tax Reform Act of 1976.
"<'*^- (c) CLERICAL AMENDMENTS.—
(1) The heading of section 465 is amended to read as follows:
26 use 465. "SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK."
(2) The table of sections for subpart C of part II of subchapter E
26 use 461 et of chapter 1 is amended by striking out "in case of certain
seq- activities" in the item relating to section 465.
SEC. 202. EXTENSION OF AT RISK PROVISIONS TO CLOSELY HELD COR-
PORATIONS.
26 use 465. Subsection (a) of section 465 (relating to deductions limited to
amount at risk) is amended to read as follows:
"(a) LIMITATION TO AMOUNT AT RISK.—
"(1) IN GENERAL.—In the case of—
"(A) an individual,
"(B) an electing small business corporation (as defined in
26 use 1371. section 1371(b)), and
"(C) a corporation with respect to which the stock owner-
26 use 542. ship requirement of paragraph (2) of section 542(a) (deter-
mined by reference to the rules contained in section 318
26 use 544. rather than under section 544) is met,
engaged in an activity to which this section applies, any loss from
such activity for the taxable year shall be allowed only to the
extent of the aggregate amount with respect to which the
taxpayer is at risk (within the meaning of subsection Qa)) for such
activity at the close of the taxable year.
"(2) DEDUCTION IN SUCCEEDING YEAR.—Any loss from an activ-
ity to which this section applies not allowed under this section for
the taxable year shall be treated as a deduction allocable to such
activity in the first succeeding taxable year."
SEC. 203. RECAPTURE OF LOSSES WHERE AMOUNT AT RISK IS LESS
THAN ZERO.
26 use 465. Section 465 (relating to deductions limited to amount at risk) is
amended by adding at the end thereof the following new subsection:
"(e) RECAPTURE OF LOSSES WHERE AMOUNT AT RISK Is LESS THAN
ZERO.—
"(1) I N GENERAL.— If zero exceeds the amount for which the
taxpayer is at risk in any activity at the close of any taxable
year—
"(A) the taxpayer shall include in his gross income for
such taxable year (as income from such activity) an amount
equal to such excess, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2817
"(B) an amount equal to the amount so included in gross
income shall be treated as a deduction allocable to such
activity for the first succeeding taxable year.
"(2) LIMITATION.—The excess referred to in paragraph (1) shall
not exceed—
"(A) the aggregate amount of the reductions required by
subsection (b)(5) with respect to the activity for all prior
taxable years beginning after December 31,1978, reduced by
"(B) the amounts previously included in gross income with
respect to such activity under this subsection."
SEC. 204. EFFECTIVE DATES. 26 USC 465
(a) I N GENERAL.—The amendments made by this subtitle shall
apply to taxable years beginning after December 31,1978.
(b) TRANSITIONAL RULES.—
(1) RECAPTURE PROVISIONS.—If the amount for which the tax-
payer is at risk in any activity as of the close of the taxpayer's
last taxable year beginning before January 1, 1979, is less than
zero, section 465(e)(1) of the Internal Revenue Code of 1954 (as ^"-te, p- 2816.
added by section 203 of this Act) shall be applied with respect to
such activity of the taxpayer by substituting such negative
amount for zero.
(2) SPECIAL TRANSITIONAL RULES FOR LEASING ACTIVITIES.—
(A) RULE FOR LEASES.—In the case of any activity described
in section 465(c)(1)(C) of such Code in which a corporation
described in section 465(aXl)(C) of such Code is engaged, the
amendments made by this section shall not apply with
respect to—
(i) leases entered into before November 1, 1978, and
(ii) leases where the property was ordered by the
lessor or lessee before November 1,1978.
(B) HOLDING OF INTERESTS FOR PURPOSES OF SUBPARAGRAPH
(A).—Subparagraph (A) shall apply only to taxpayers who
held their interests in the property on October 31, 1978.
Subtitle B—Partnership Provisions
SEC. 211. PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURN.
(a) GENERAL RULE.—Subchapter B of chapter 68 (relating to assess-
able penalties) is amended by adding at the end thereof the following
new section:
"SEC. 6698. FAILURE TO FILE PARTNERSHIP RETURN. 26 USC 6698.
"(a) GENERAL RULE.—In addition to the penalty imposed by section
7203 (relating to willful failure to file return, supply information, or 26 USC 7203.
pay tax), if any partnership required to file a return under section
6031 for any taxable year— 26 USC 6031.
"(1) fails to file such return at the time prescribed therefor
(determined with regard to any extension of time for filing), or
"(2) files a return which fails to show the information required
under section 6031,
such partnership shall be liable for a penalty determined under
subsection (b) for each month (or fraction thereof) during which such
failure continues (but not to exceed 5 months), unless it is shown that
such failure is due to reasonable cause.
92 STAT. 2818 PUBLIC LAW 95-600—NOV. 6, 1978
"(b) AMOUNT P E R MONTH.—For purposes of subsection (a), the
amount determined under this subsection for any month is the
product of—
"(1) $50, multiplied by
"(2) the number of persons who were partners in the partner-
ship during any part of the taxable year
"(c) ASSESSMENT OF PENALTY.—The penalty imposed by subsection
(a) shall be assessed against the partnership.
"(d) DEFICIENCY PROCEDURES NOT T O APPLY.—Subchapter B of
chapter 63 (relating to deficiency procedures for income, estate, gift,
and certain excise taxes) shall not apply in respect of the assessment
or collection of any penalty imposed by subsection (a)."
(b) CLERICAL AMENDMENT.—The table of sections for subchapter B
of chapter 68 is amended by adding at the end thereof the following
new item:
"Sec. 6698. Failure to file partnership return."
26 use 6698 (c) EFFECTIVE DATE.—The amendments made by this section shall
"ote. apply with respect to returns for taxable years beginning after
December 31,1978.
SEC. 212. EXTENSION OF STATUTE OF LIMITATIONS IN THE CASE OF
PARTNERSHIP ITEMS.
26 use 6501. (a) ASSESSMENT OF DEFICIENCIES.—Section 6501 (relating to limita-
tions on assessment and collection) is amended by adding at the end
thereof the following new subsection:
"(q) SPECIAL RULES FOR PARTNERSHIP ITEMS OF FEDERALLY REGIS-
TERED PARTNERSHIPS.—
"(1) IN GENERAL.—In the case of any tax imposed by subtitle A
with respect to any person, the period for assessing a deficiency
attributable to any partnership item of a federally registered
partnership shall not expire before the later of—
"(A) the date which is 4 years after the date on which the
partnership return of the federally registered partnership
for the partnership taxable year in which the item arose was
filed (or, later, if the date prescribed for filing the return), or
"(B) if the name or address of such person does not appear
on the partnership return, the date which is 1 year after the
date on which such information is furnished to the Secretary
in such manner and at such place as he may prescribe by
regulations.
"(2) PARTNERSHIP ITEM DEFINED.—For purposes of this subsec-
tion, the term 'partnership item' means—
"(A) any item required to be taken into account for the
partnership taxable year under any provision of subchapter
K of chapter 1 to the extent that regulations prescribed by
the Secretary provide that for purposes of this subtitle such
item is more appropriately determined at the partnership
level than at the partner level, and
"(B) any other item to the extent affected by an item
described in subparagraph (A).
"(3) EXTENSION BY AGREEMENT.—The extensions referred to in
subsection (c)(4), insofar as they relate to partnership items, may,
with respect to any person, be consented to—
"(A) except to the extent the Secretary is otherwise noti-
fied by the partnership, by a general partner of the partner-
ship, or
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2819
"(B) by any person authorized to do so by the partnership
in writing.
"(4) FEDERALLY REGISTERED PARTNERSHIP.—For purposes of this
subsection, the term 'federally registered partnership' means,
with respect to any partnership taxable year, any partnership—
"(A) interests in which have been offered for sale at any
time during such taxable year or a prior taxable year in any
offering required to be registered with the Securities and
Exchange Commission, or
"(B) which, at any time during such taxable year or a prior
taxable year, was subject to the annual reporting require-
ments of the Securities and Exchange Commission which
relate to the protection of investors in the partnership."
(b) CREDITS AND REFUNDS.—
(1) IN GENERAL.—Section 6511 (relating to limitations on credit 26 USC 6511.
or refund) is amended by redesignating subsection (g) as subsec-
tion (h) and by inserting after subsection (f) the following new
subsection:
"(g) SPECIAL RULE FOR PARTNERSHIP ITEMS OF FEDERALLY REGIS-
TERED PARTNERSHIPS.—
"(1) IN GENERAL.—In the case of any tax imposed by subtitle A
with respect to any person, the period for filing a claim for credit
or refund of any overpayment attributable to any partnership
item of a federally registered partnership shall not expire before
the later of—
"(A) the date which is 4 years after the date prescribed by
law (including extensions thereof) for filing the partnership
return for the partnership taxable year in which the item
arose, or
"(B) if an agreement under the provisions of section
6501(c)(4) extending the period for the assessment of any
deficiency attributable to such partnership item is made
before the date specified in subparagraph (A), the date 6
months after the expiration of such extension.
In any case to which the preceding sentence applies, the amount
of the credit or refund may exceed the portion of the tax paid
within the period provided in subsection (b)(2) or (c), whichever is
applicable.
"(2) DEFINITIONS.—For purposes of this subsection, the terms
'partnership item' and 'federally registered partnership' have
the same meanings as such terms have when used in section
6501(q)."
(2) TECHNICAL AMENDMENT.—Paragraph (2) of section 6512(b) 26 USC 6512.
(relating to overpayment determined by Tax Court) is amended
by striking out "(c), or (d)" each place it appears and inserting in
lieu thereof "(c), (d), or (g)".
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6501
apply to partnership items arising in partnership taxable years "o*^-
beginning after December 31,1978.
92 STAT. 2820 PUBLIC LAW 95-600—NOV. 6, 1978
TITLE III—PROVISIONS PRIMARILY
AFFECTING BUSINESS INCOME TAX
Subtitle A—Corporate Rate Reductions
SEC. 301. CORPORATE RATE REDUCTIONS.
26 use 11. (a) IN GENERAL.—Section 11 (relating to the tax imposed on
corporations) is amended to read as follows:
"SEC. 11. TAX IMPOSED.
"(a) CORPORATIONS IN GENERAL.—A tax is hereby imposed for each
taxable year on the taxable income of every corporation.
"(b) AMOUNT OF TAX.—The amount of the tax imposed by subsec-
tion (a) shall be the sum of—
"(1) 17 percent of so much of the taxable income as does not
exceed $25,000;
"(2) 20 percent of so much of the taxable income as exceeds
$25,000 but does not exceed $50,000;
"(3) 30 percent of so much of the taxable income as exceeds
$50,000 but does not exceed $75,000;
"(4) 40 percent of so much of the taxable income as exceeds
$75,000 but does not exceed $100,000; plus
"(5) 46 percent of so much of the taxable income as exceeds
$100,000.
"(c) EXCEPTIONS.—Subsection (a) shall not apply to a corporation
subject to a tax imposed by—
26 use 594. "(1) section 594 (relating to mutual savings banks conducting
life insurance business),
26 use 801. "(2) subchapter L (sec. 801 and following, relating to insurance
companies), or
26 use 851. "(3) subchapter M (sec. 851 and following, relating to regulated
investment companies and real estate investment trusts),
"(d) FOREIGN CORPORATIONS.—In the case of a foreign corporation,
the tax imposed by subsection (a) shall apply only as provided by
26 use 882. section 882."
(b) CONFORMING AMENDMENTS.—
(1) CROSS REFERENCES RELATING TO CORPORATIONS.—Paragraph
26 use 12. (7) of section 12 (relating to cross references relating to tax on
corporations) is amended to read as follows:
"(7) For limitation on benefits of graduated rate schedule provided in
section 11(b), see section 1551."
26 use 57. (2) MINIMUM TAX.—Subparagraph (B) of section 57(a)(9) (relat-
ing to capital gains preference for corporations) is amended by
striking out "the sum of the normal tax rate and the surtax rate
under section 11" each place it appears and inserting in lieu
thereof "the highest rate of tax specified in section 11(b)".
(3) DIVIDENDS RECEIVED ON CERTAIN PREFERRED STOCK.—Sub-
26 use 244. paragraph (B) of section 244(a)(2) (relating to dividends received
on certain preferred stock) is amended by striking out "the sum
of the normal tax rate and the surtax rate for the taxable year
prescribed by section 11" and inserting in lieu thereof "the
highest rate of tax specified in section 11(b)".
(4) DIVIDENDS PAID ON CERTAIN PREFERRED STOCK OF PUBLIC
26 use 247. UTILITIES.—Subparagraph (B) of section 247(a)(2) (relating to
dividends paid on certain preferred stock of public utilities) is
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2821
amended by striking out "the sum of the normal tax rate and the
surtax rate for the taxable year specified in section 11" and
inserting in lieu thereof "the highest rate of tax specified in
section 11(b)".
(5) TAX ON UNRELATED BUSINESS INCOME OF CHARITABLE, ETC.,
ORGANIZATIONS.—
(A) IMPOSITION OF TAX.—Paragraph (1) of section 511(a) 26 USC 511.
(relating to charitable, etc., organizations taxable at corpora-
tion rates) is amended by striking out "a normal tax and a
surtax" and inserting in lieu thereof "a tax".
(B) ORGANIZATIONS SUBJECT TO TAX.—Paragraph (2) of
section 511(a) is amended by striking out "taxes" each place
it appears and inserting in lieu thereof "tax".
(6) POLITICAL ORGANIZATIONS.—Paragraph (1) of section 527(b) 26 USC 527.
(relating to tax imposed) is amended to read as follows:
"(1) I N GENERAL.—A tax is hereby imposed for each taxable
year on the political organization taxable income of every politi-
cal organization. Such tax shall be computed by multiplying the
political organization taxable income by the highest rate of tax
specified in section 11(b)." ^^te, p. 2820.
(7) HOMEOWNERS ASSOCIATIONS.—Paragraph (1) of section
528(b) (relating to tax imposed) is amended to read as follows: 26 USC 528.
"(1) I N GENERAL.—A tax is hereby imposed for each taxable
year on the homeowners association taxable income of every
homeowners association. Such tax shall be computed by multi-
plying the homeowners association taxable income by the high-
est rate of tax specified in section 11(b)."
(8) LIFE INSURANCE COMPANIES.—Paragraph (1) of section 802(a) 26 USC 802.
(relating to tax imposed) is amended by striking out "a normal
tax and surtax" and inserting in lieu thereof "a tax".
(9) MUTUAL INSURANCE COMPANIES.—
(A) IN GENERAL.—Subsection (a) of section 821 (relating to 26 USC 821.
tax on mutual insurance companies to which part II applies)
is amended to read as follows:
"(a) IMPOSITION OF TAX.—
"(1) I N GENERAL.—A tax is hereby imposed for each taxable
year on the mutual insurance company taxable income of every
mutual insurance company (other than a life insurance company
and other than a fire, flood, or marine insurance company
subject to the tax imposed by section 831). Such tax shall be 26 USC 831.
computed by multiplying the mutual insurance company taxable
income by the rates provided in section 11(b).
"(2) CAP ON TAX WHERE INCOME IS LESS THAN $12,000.—The tax
imposed by paragraph (1) shall not exceed 34 percent of the
amount by which the mutual insurance company taxable income
exceeds $6,000."
(B) SMALL COMPANIES.—Paragraph (1) of section 821(c) 26 USC 821.
(relating to alternative tax for certain small companies) is
amended to read as follows:
"(1) IMPOSITION OF TAX.—
"(A) I N GENERAL.—There is hereby imposed for each
taxable year on the income of every mutual insurance
company to which this subsection applies a tax (which shall
be in lieu of the tax imposed by subsection (a)). Such tax shall
be computed by multiplying the taxable investment income
by the rates provided in section 11(b).
92 STAT. 2822 PUBLIC LAW 95-600—NOV. 6, 1978
"(B) CAP WHERE INCOME IS LESS THAN $6,000.—The tax
imposed by subparagraph (A) shall not exceed 34 percent of
the amount by which the taxable investment income exceeds
$3,000."
26 use 826. (10) ELECTION BY MUTUAL INSURANCE COMPANY WHICH IS A
RECIPROCAL.—Paragraph (1) of section 826(c) (relating to excep-
tion) is amended to read as follows:
Ante, p. 2820. "(1) is subject to the tax imposed by section 11;".
(11) REGULATED INVESTMENT COMPANIES.—Paragraph (1) of
26 use 852. section 852(b) (relating to method of taxation of companies and
shareholders) is amended to read as follows:
"(1) IMPOSITION OF TAX ON REGULATED INVESTMENT COMPA-
NIES.—There is hereby imposed for each taxable year upon the
investment company taxable income of every regulated invest-
ment company a tax computed as provided in section 11, as
though the investment company taxable income were the tax-
able income referred to in section 11."
(12) REAL ESTATE INVESTMENT TRUSTS.—Paragraph (1) of section
26 use 857. 857(b) (relating to imposition of normal tax and surtax on real
estate investment trusts) is amended to read as follows:
"(1) IMPOSITION OF TAX ON REAL ESTATE INVESTMENT TRUSTS.—
There is hereby imposed for each taxable year on the real estate
investment trust taxable income of every real estate investment
trust a tax computed as provided in section 11, as though the real
estate investment trust taxable income were the taxable income
referred to in section 11."
(13) TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED WITH
UNITED STATES BUSINESS.—The heading of subsection (a) of section
26 use 882. 882 (relating to tax on income of foreign corporations connected
with United States business) and the heading of paragraph (1) of
such subsection are amended to read as follows:
"(a) IMPOSITION OF TAX.—
"(1) I N GENERAL.—".
26 use 907. (14) FOREIGN TAX CREDIT.—Paragraph (2) of section 907(a)
(relating to reduction in amount allowed as foreign tax under
26 use 901. section 901) is amended to read as follows:
"(2) the percentage which is equal to the highest rate of tax
specified in section 11(b)."
(15) SPECIAL DEDUCTION FOR WESTERN HEMISPHERE TRADE CORPO-
26 use 922. RATION.—Subparagraph (B) of section 922(a)(2) (relating to gen-
eral rule) is amended by striking out "the sum of the normal tax
rate and the surtax rate for the taxable year prescribed by
section 11" and inserting in lieu thereof "the highest rate of tax
specified in section 11(b)."
(16) ELECTION BY INDIVIDUALS TO BE SUBJECT TO TAX AT CORPO-
26 use 962. RATE RATES.—Subsection (c) of section 962 (relating to surtax
exemption with respect to individuals subject to tax at corporate
rates) is amended to read as follows:
"(c) PRO RATION OF EACH SECTION 11 BRACKET AMOUNT.—For
purposes of applying subsection (a)(1), the amount in each taxable
income bracket in the tax table in section 11(b) shall not exceed an
amount which bears the same ratio to such bracket amount as the
amount included in the gross income of the United States share-
26 use 951. holder under section 951(a) for the taxable year bears to such
shareholder's pro rata share of the earnings and profits for the
taxable year of all controlled foreign corporations with respect to
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2823
which such shareholder includes any amount in gross income under
section 951(a)." 26 use 951.
(17) TREATMENT OF RECOVERIES OF FOREIGN EXPROPRIATION
LOSSES.—Paragraph (4) of section 1351(d) (relating to adjustment 26 USC 1351.
for prior tax benefits) is amended to read as follows:
"(4) SUBSTITUTION OF CURRENT TAX RATE.—For purposes of this
subsection, the rates of tax specified in section 11(b) for the ^nte, p. 2820.
taxable year of the recovery shall be treated as having been in
effect for all prior taxable years."
(18) AMENDMENTS OF SECTION 1551.— 26 use 1551.
(A) Subsection (a) of section 1551 (relating to disallowance
of surtax exemption and accumulated earnings credit) is
amended—
(i) by striking out "disallow the surtax exemption (as
defined in section 11(d))" and inserting in lieu thereof
"disallow the benefits of the rates contained in section
11(b) which are lower than the highest rate specified in
such section", and
(ii) by striking out "such exemption or" and inserting
in lieu thereof' 'such benefits or".
(B) The section heading of section 1551 is amended to read
as follows:
"SEC. 1551. DISALLOWANCE OF THE BENEFITS OF THE GRADUATED COR- 26 USC 1551.
PORATE RATES AND ACCUMULATED EARNINGS CREDIT."
(C) The table of sections for part I of subchapter B of
chapter 6 is amended by striking out the item relating to
section 1551 and inserting in lieu thereof the following new
item:
"Sec. 1551. Disallowance of the benefits of the graduated corporate rates
and accumulated earnings credit."
(19) LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN THE
CASE OF C E R T A I N CONTROLLED CORPORATIONS.—
(A) IN GENERAL.—Subsection (a) of section 1561 (relating to 26 use 1561.
limitations on certain multiple tax benefits in the case of
certain controlled corporations) is amended—
(i) by striking out paragraph (1) and inserting in lieu
thereof the following:
"(1) amounts in each taxable income bracket in the tax table in
section 11(b) which do not aggregate more than the maximum
amount in such bracket to which a corporation which is not a
component member of a controlled group is entitled,",
(ii) by striking out "amount" each place it appears in
the second sentence and inserting in lieu thereof
"amounts", and
(iii) by striking out the last sentence.
(B) CERTAIN SHORT TAXABLE YEARS.—Paragraph (1) of sec-
tion 1561(b) (relating to certain short taxable years) is
amended to read as follows:
"(1) the amount in each taxable income bracket in the tax table
in section 11(b),".
(20) REPEAL OF CERTAIN OBSOLETE PROVISIONS.—
(A) Subsection (c) of section 6154 (defining estimated tax) is 26 use 6154.
amended to read as follows:
"(c) ESTIMATED TAX DEFINED.—For purposes of this title, in the case
of a corporation the term 'estimated tax' means the excess of—
92 STAT. 2824 PUBLIC LAW 95-600—NOV. 6, 1978
"(1) the amount which the corporation estimates as the
amount of the income tax imposed by section 11 or 1201(a), or
26 use 11, subchapter L of chapter 1, whichever is applicable, over
9^^n<;r "^^^ ^^® amount which the corporation estimates as the sum of
26 use 801. ^j^g credits against tax provided by part IV of subchapter A of
26 use 31. chapter 1."
26 use 6655. (B) Subsection (e) of section 6655 (defining tax) is amended
to read as follows:
"(e) DEFINITION OF TAX.—For purposes of subsections (b) and (d),
the term 'tax' means the excess of—
"(1) the tax imposed by section 11 or 1201(a), or subchapter L of
26 use 11, chapter 1, whichever is applicable, over
}3^}-^ ^^, "(2) the credits against tax provided by part IV of subchapter A
|6USe80le^ of chapter 1."
26 use 31 et seq. (c) EFFECTIVE DATE.—The amendments made by this section shall
26 use 11 note, apply to taxable years beginning after December 31,1978.
Subtitle B—Credits
SEC. 311. 10-PERCENT INVESTMENT TAX CREDIT AND $100,000 LIMITA-
TION ON USED PROPERTY MADE PERMANENT.
(a) 10-PERCENT INVESTMENT CREDIT.—Subparagraph (B) of section
26 use 46. 46(a)(2) (defining regular percentage) is amended to read as follows:
"(B) REGULAR PERCENTAGE.—For purposes of this para-
graph, the regular percentage is 10 percent."
(b) $100,000 LIMITATION ON USED PROPERTY.—Paragraph (2) of
26 use 48 note, section 301(c) of the Tax Reduction Act of 1975 (relating to effective
date for increase of dollar limitation on used property) is amended by
striking out", and before January 1,1981".
(c) TECHNICAL AMENDMENTS.—
26 use 46. (1) Subparagraph (A) of section 46(c)(3) (relating to public
utility property) is amended by striking out "For the period
beginning on January 1,1981" and inserting in lieu thereof "To
the extent that the credit allowed by section 38 with respect to
any public utility property is determined at the rate of 7
percent".
26 use 46. (2) The first sentence of section 46(f)(8) (relating to prohibition
of immediate flow through) is amended by striking out "and the
92 Stat. 3174. Energy Tax Act of 1978" and inserting in lieu thereof "the
26 use 1 note. Energy Tax Act of 1978, and the Revenue Act of 1978".
Ante, p. 2763.
^ SEC. 312. INCREASE IN LIMITATION ON INVESTMENT CREDIT TO 90 PER-
CENT OF TAX LIABILITY
(a) INCREASE IN GENERAL LIMITATION.—Paragraph (3) of section
26 use 46. 46(a) (relating to amount of credit) is amended to read as follows:
"(3) LIMITATION BASED ON AMOUNT OF TAX.—Notwithstanding
paragraph (1), the credit allowed by section 38 for the taxable
year shall not exceed—
"(A) so much of the liability for tax for the taxable year as
does not exceed $25,000, plus
"(B) the following percentage of so much of the liability for
tax for the taxable year as exceeds $25,000:
"If the taxable year ends in: The percentage is:
• 1979 60
1980 70
1981 80
1982 or thereafter 90."
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2825
(b) SPECIAL RULES FOR CERTAIN UTIUTIES, RAILROADS, AND AIR-
UNES.—
(1) UTILITIES.—Paragraph (7) of section 46(a) (relating to alter- 26 use 46.
native limitation in the case of certain utilities) is amended to
read as follows:
"(7) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN UTILI-
TIES.—
"(A) IN GENERAL.—If, for the taxable year ending in 1979—
"(i) the amount of the qualified investment of the
taxpayer which is attributable to public utility property
is 25 percent or more of his aggregate qualified invest-
ment, and
"(ii) the application of this paragraph results in a
percentage higher than 60 percent,
then subparagraph (B) of paragraph (3) of this subsection
shall be applied by substituting for '60 percent' the taxpay-
er's applicable percentage for such year.
"(B) APPLICABLE PERCENTAGE.—The applicable percentage
for any taxpayer for any taxable year ending in 1979 is—
"(i) 50 percent, plus
"(ii) that portion of 20 percent which the taxpayer's
amount of qualified investment which is public utility
property bears to his aggregate qualified investment.
If the proportion referred to in clause (ii) is 75 percent or
more, the applicable percentage of the taxpayer for the year
shall be 70 percent.
"(C) PUBLIC UTILITY PROPERTY DEFINED.—For purposes of
this paragraph, the term 'public utility property' has the
meaning given to such term by the first sentence of subsec-
tion (c)(3)(B)."
(2) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN RAILROADS
AND AIRLINES.—Subsection (a) of section 46 is amended by strik-
ing out paragraphs (8) and (9) and by inserting in lieu thereof the
following new paragraph:
"(8) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN RAIL-
ROADS AND AIRLINES.—
"(A) IN GENERAL.—If^ for a taxable year ending in 1979 or
1980—
"(i) the amount of the qualified investment of the
taxpayer which is attributable to railroad property or to
airline property, as the case may be, is 25 percent or
more of his aggregate qualified investment, and
"(ii) the application of this paragraph results in a
percentage higher than 60 percent (70 percent in the
case of a taxable year ending in 1980),
then subparagraph (B) of paragraph (3) of this subsection
shall be applied by substituting for'60 percent'('70 percent'
in the case of a taxable year ending in 1980) the taxpayer's
applicable percentage for such year.
"(B) APPLICABLE PERCENTAGE.—The applicable percentage
of any taxpayer for any taxable year under this paragraph
is—
"(i) 50 percent, plus
"(ii) that portion of the tentative percentage for the
taxable year which the taxpayer's amount of qualified
investment which is railroad property or airline prop-
39-194 O—80—pt. 3 13 : QL3
92 STAT. 2826 . PUBLIC LAW 95-600—NOV. 6, 1978
^* erty (as the case may be) bears to his aggregate qualified
investment.
If the proportion referred to in clause (ii) is 75 percent or
more, the applicable percentage of the taxpayer for the
taxable year shall be 90 percent (80 percent in the case of a
taxable year ending in 1980).
"(C) TENTATIVE PERCENTAGE.—For purposes of subpara-
graph (B), the tentative percentage shall be determined
under the following table:
"If the taxable year
ends in: The tentative percentage is:
1979 40
1980 30
"(D) RAILROAD PROPERTY DEFINED.—For purposes of this
paragraph, the term 'railroad property' means section 38
property used by the taxpayer directly in connection with
the trade or business carried on by the taxpayer of operating
a railroad (including a railroad switching or terminal
company).
"(E) AIRLINE PROPERTY DEFINED.—For purposes of this
paragraph, the term 'airline property' means section 38
property used by the taxpayer directly in connection with
the trade or business carried on by the taxpayer of the
furnishing or sale of transportation as a common carrier by
air subject to the jurisdiction of the Civil Aeronautics Board
or the Federal Aviation Administration."
(c) REPEAL OF CERTAIN OBSOLETE PROVISIONS.—
(1) Subsections (h), (i), and (j) of section 48 and sections 49 and
26 u s e 48, 49, 50 are hereby repealed.
50. (2) Paragraphs (1) and (2) of section 46(f) and subparagraph (B)
26 u s e 46. of section 48(a)(7) are each amended by striking out "described in
26 u s e 48. section 50".
26 u s e 50. (3) Subparagraph (A) of section 48(a)(7) is amended by striking
26 u s e 48.
26 u s e 167 out "(other than pre-termination property)".
(4) Subsection (i) of section 167 is hereby repealed.
(5) The table of sections for subpart B of part IV of subchapter
26 u s e 46. A of chapter 1 is amended by striking out the items relating to
26 u s e 49, 50. sections 49 and 50.
26 u s e 46 note (d) EFFECTIVE DATE.—The amendments made by this section shall
apply to taxable years ending after December 31,1978.
SEC. 313. INVESTMENT CREDIT FOR POLLUTION CONTROL FACILITIES.
26 u s e 46. (a) IN GENERAL.—Paragraph (5) of section 46(c) (relating to applica-
ble percentage in the case of certain pollution control facilities) is
amended to read as follows:
"(5) APPLICABLE PERCENTAGE IN THE CASE OF CERTAIN POLLU-
TION CONTROL FACILITIES.—
(A) IN GENERAL.—Notwithstanding paragraph (2), in the
case of property—
"(i) with respect to which an election under section
26 use 169. 169 applies, and
"(ii) the useful life of which (determined without
regard to section 169) is not less than 5 years.
100 percent shall be the applicable percentage for purposes
of applying paragraph (1) with respect to so much of the
adjusted basis of the property as (after the application of
section 169(f)) constitutes the amortizable basis for purposes
of section 169.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2827
' "(B) SPECIAL RULE WHERE PROPERTY IS FINANCED BY INDUS-
TRIAL DEVELOPMENT BONDS.—To the extent that any property
is financed by the proceeds of an industrial development
bond (within the meaning of section 103(b)(2)) the interest on 26 use 103.
which is exempt from tax under section 103, subparagraph
(A) shall be applied by substituting '50 percent' for '100
percent'."
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 46 note.
apply to—
(1) property acquired by the taxpayer after December 31,1978,
and
(2) property the construction, reconstruction, or erection of
which was completed by the taxpayer after December 31, 1978
(but only to the extent of the basis thereof attributable to
construction, reconstruction, or erection after such date).
SEC. 314. INVESTMENT CREDIT FOR CERTAIN SINGLE PURPOSE AGRI-
CULTURAL OR HORTICULTURAL STRUCTURES.
(a) GENERAL RULE.—Paragraph (1) of section 48(a) (defining section 26 USC 48.
38 property) is amended by striking out the period at the end of 26 USC 38.
subparagraph (C) and inserting in lieu thereof ", or" and by inserting
after subparagraph (C) the following new subparagraph:
"(D) single purpose agricultural or horticultural struc-
tures."
(b) DEFINITION OF SINGLE PURPOSE AGRICULTURAL OR HORTICUL-
TURAL STRUCTURES.—Section 48 is amended by redesignating subsec- 26 USC 48.
tion (p) as subsection (q) and by inserting after subsection (o) the
following new subsection:
"(p) SINGLE PURPOSE AGRICULTURAL OR HORTICULTURAL STRUCTURE
DEFINED.—For purposes of this section—
"(1) I N GENERAL.—The term 'single purpose agricultural or
horticultural structure' means—
"(A) a single purpose livestock structure, and
"(B) a single purpose horticultural structure.
"(2) SINGLE PURPOSE LIVESTOCK STRUCTURE.—The term 'single
purpose livestock structure' means any enclosure or structure
specifically designed, constructed, and used—
"(A) for housing, raising, and feeding a particular type of
livestock and their produce, and
"(B) for housing the equipment (including any replace-
ments) necessary for the housing, raising, and feeding re-
ferred to in subparagraph (A).
"(3) SINGLE PURPOSE HORTICULTURAL STRUCTURE.—The term
'single purpose horticultural structure' means—
"(A) a greenhouse specifically designed, constructed, and
used for the commerical production of plants, and
"(B) a structure specifically designed, constructed and
used for the commercial production of mushrooms.
"(4) STRUCTURES WHICH INCLUDE WORK SPACE.—An enclosure
or structure which provides work space shall be treated as a
single purpose agricultural or horticultural structure only if
such work space is solely for—
"(A) the stocking, caring for, or collecting of livestock or
plants (as the case may be) or their produce,
"(B) the maintenance of the enclosure or structure, and
"(C) the maintenance or replacement of the equipment or
stock enclosed or housed therein.
92 STAT. 2828 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 47. "(5) SPECIAL RULE FOR APPLYING SECTION 47.—For purposes of
section 47, any single purpose agricultural or horticultural
structure shall be treated as meeting the requirements of this
subsection for any period during which such structure is held for
the use under which it qualified under this subsection.
"(6) LIVESTOCK.—The term 'livestock' includes poultry."
26 use 48 note. (c) EFFECTIVE DATE.—The amendments made by subsections (a) and
db) shEill apply to taxable years ending after August 15,1971.
SEC. 315. INVESTMENT CREDIT ALLOWED FOR CERTAIN REHABILITATED
BUILDINGS.
26 use 48. (a) IN GENERAL.—Paragraph (1) of section 48(a) (defining section 38
26 use 38. property) is amended by striking out the period at the end of
subparagraph (D) and by inserting in lieu thereof "; or" and the
following new subparagraph:
"(E) in the case of a qualified rehabilitated building, that
portion of the basis which is attributable to qualified reha-
bilitation expenditures (within the meaning of subsection
(g))."
(b) QUAUFIED REHABILITATED BUILDINGS DEFINED.—Section 48 is
amended by inserting after subsection (f) the following new subsec-
tion:
"(g) SPECIAL RULES FOR QUALIFIED REHABILITATED BUILDINGS.—For
purposes of this subpart—
"(1) QUALIFIED REHABILITATED BUILDING DEFINED.—
"(A) IN GENERAL.—The term 'qualified rehabilitated build-
ing' means any building (and its structural components)—
"(i) which has been rehabilitated,
"(ii) which was placed in service before the beginning
of the rehabilitation, and
"(iii) 75 percent or more of the existing external walls
of which are retained in place as external walls in the
rehabilitation process.
"(B) 20 YEARS MUST HAVE ELAPSED SINCE CONSTRUCTION OR
PRIOR REHABILITATION.—A building shall not be a qualified
rehabilitated building unless there is a period of at least 20
years between—
"(i) the date the physical work on this rehabilitation of
the building began, and
"(ii) the later of—
"(I) the date such building was first placed in
service, or
.,,,,i "(II) the date such building was placed in service
in connection with a prior rehabilitation with re-
spect to which a credit was allowed by reason of
subsection (a)(1)(E).
"(C) MAJOR PORTION TREATED AS SEPARATE BUILDING IN
CERTAIN CASES.—Where there is a separate rehabilitation of
a major portion of a building, such major portion shall be
treated as a separate building.
"(D) REHABILITATION INCLUDES RECONSTRUCTION.—Reha-
bilitation includes reconstruction.
"(2)(^i
QUALIFIED REHABILITATION EXPENDITURE DEFINED.—
(A) IN GENERAL.—The term 'qualified rehabilitation ex-
penditure' means any amount properly chargeable to capital
account which is incurred after October 31,1978—
"(i) for property (or additions or improvements to
property) with a useful life of 5 years or more, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2829
"(ii) in connection with the rehabilitation of a quali-
fied rehabilitated building.
"(B) CERTAIN EXPENDITURES NOT INCLUDED.—The term
* 'qualified rehabilitation expenditure' does not include—
"(i) PROPERTY OTHERWISE SECTION 38 PROPERTY.—Any 26 use 38.
expenditure for property which constitutes section 38
property (determined without regard to subsection
(a)(1)(E).
"(ii) COST OF ACQUISITION.—The cost of acquiring any
building or any interest therein.
"(iii) ENLARGEMENTS.—Any expenditure attributable
to the enlargement of the existing building.
"(iv) CERTIFIED HISTORIC STRUCTURES.—Any expendi-
ture attributable to the rehabilitation of a certified
historic structure (within the meaning of section
191(d)(1)), unless the rehabilitation is a certified reha- 26 USC 191.
bilitation (within the meaning of section 191(dX4)).
"(3) PROPERTY TREATED AS NEW SECTION 38 PROPERTY.—Prop-
erty which is treated as section 38 property by reason of subsec-
tion (a)(1)(E) shall be treated as new section 38 property."
(c) TECHNICAL AMENDMENT.—Paragraph (8) of section 48(a) (relat- 26 use 48.
ing to amortized property) is amended by striking out "or 188" and
inserting in lieu thereof "188, or 191".
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 48 note.
apply to taxable years ending after October 31,1978; except that the
amendment made by subsection (c) shall only apply with respect to
property placed in service after such date.
SEC. 316. TAX TREATMENT OF THE INVESTMENT CREDIT IN THE CASE OF
COOPERATIVE ORGANIZATIONS.
(a) IN GENERAL.—Section 46 (relating to amount of credit) is 26 use 46.
amended by adding at the end thereof the following new subsection:
"(h) SPECIAL RULES FOR COOPERATIVES.—In the case of a cooperative
organization described in section 1381(a)— 26 use 1381.
"(1) that portion of the credit allowable to the organization
under section 38 which the organization cannot use for the
taxable year to which the qualified investment is attributable
because of the limitation contained in subsection (a)(3) shall be
allocated to the patrons of the organization,
"(2) section 47 (relating to certain dispositions, etc., of section 26 use 47.
38 property) shall be applied as if any allocated portion of the
credit had been retained by the organization, and
"(3) the idles necessary to carry out the purposes of this
subsection shall be determined under regulations prescribed by
the Secretary."
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 46(e) (relating to limitations in case 26 use 46.
ofcertain persons) is amended—
(A) by adding "and" at the end of subparagraph (A),
(B) by striking out "and" at the end of subparagraph (B),
and
(C) by striking out subparagraph (C).
(2) Paragraph (2) of section 46(e) is amended—
(A) by adding "and" at the end of subparagraph (A),
(B) by striking out, ", and" at the end of subparagraph (B)
and inserting in lieu thereof a period, and
(C) by striking out subparagraph (C).
92 STAT. 2830 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 1388. (3) Section 1388 (relating to definitions and special rules for
cooperative organizations) is amended by adding at the end
thereof the following new subsection,
"(j) CROSS REFERENCE.— *
"For provisions relating to the apportionment of the investment credit
between cooperative organizations and their patrons, see section 46(h)."
26 use 46 note. (c) EFFECTIVE DATE.—The amendments made by this section shall
apply to taxable years ending after October 31,1978.
SEC. 317. TRANSFERS TO CONRAIL NOT TREATED AS DISPOSITIONS FOR
PURPOSES OF THE INVESTMENT CREDIT.
26 use 47. (a) I N GENERAL.—Subsection (b) of section 47 (relating to certain
26 use 38. disposition, etc., of section 38 property) is amended by striking out
"or" at the end of paragraph (1), by striking out the period at the end
of paragraph (2) and inserting in lieu thereof **, or", and by inserting
after paragraph (2) the following new paragraph:
26 use 374. "(3) a transfer to which subsection (c) of section 374 (relating to
exchanges under the final system plan for Ck>nR£dl) applies."
26 use 47 note. (b) EFFECTIVE DATE.—The amendments made by subsection (a)
shall apply to taxable years ending after March 31,1976.
Subtitle C—Targeted Jobs Credit; WIN Credit
SEC. 321. TARGETED JOBS CREDIT.
(a) I N GENERAL.—Section 51 (relating to amount of credit) is
amended to read as follows:
26 use 51. "SEC. 5L AMOUNT OF CREDIT.
"(a) DETERMINATION OF AMOUNT.—The amount of the credit al-
Post, p. 2834. lowable by section 44B for the taxable year shall be the sum of—
"(1) 50 percent of the qualified first-year wages for such year,
and
"(2) 25 percent of the qualified second-year wages for such year.
"(b) QUALIFIED WAGES DEFINED.—For purposes of this subpart—
"(1) IN GENERAL.—The term 'qualified wages' means the wages
paid or incurred by the employer during the taxable year to
individuals who are members of a targeted group.
"(2) QuAUFiED FIRST-YEAR WAGES.—The term 'qualified first-
T :;-^ year wages' means, with respect to any individual, qualified
wages attributable to service rendered during the 1-year period
beginning with the day the individual begins work for the
employer (or, in the case of a vocational rehabilitation referral,
the day the individual begins work for the employer on or after
the beginning of such individual's rehabilitation plan).
"(3) QuAUFiED SECOND-YEAR WAGES.—The term 'qualified
.<. second-year wages' means, with respect to any individual, the
qualified wages attributable to service rendered during the 1-
year period beginning on the day after the last day of the 1-year
period with respect to such individual determined under para-
graph (2).
"(4) ONLY FIRST $6,000 OF WAGES PER YEAR TAKEN INTO AC-
COUNT.—The amount of the qualified first-year wages, and the
amount of the qualified second-year wages, which may be taken
into account with respect to any individual shall not exceed
$6,000 per year.
"(c) WAGES DEFINED.—For purposes of this subpart—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2831
"(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion and subsection (h)(2), the term 'wages' has the meaning
given to such term by subsection (b) of section 3306 (determined 26 use 3306.
without regard to any dollar limitation contained in such sec-
tion).
"(2) EXCLUSION FOR EMPLOYERS RECEIVING ON-THE-JOB TRAINING
PAYMENTS.—The term 'wages' shall not include any amounts
paid by an employer for any period to any individual for whom
the employer receives federally funded payments for on-the-job
training of such individual for such period.
"(3) INDIVIDUALS FOR WHOM WIN CREDIT CLAIMED.—The term
'wages' does not include any amount paid or incurred by the
employer to an individual with respect to whom the employer
claims credit under section 40. 26 USC 40.
"(4) TERMINATION.—The term 'wages' shall not include any
amount paid or incurred after December 31,1980.
"(d) MEMBERS OF TARGETED GROUPS.—For purposes of this sub-
part—
"(1) I N GENERAL.—An individual is a member of a targeted
group if such individual is—
"(A) a vocational rehabilitation referral,
"(B) an economically disadvantaged youth,
"(C) an economically disadvantaged Vietnam-era veteran,
"(D) an SSI recipient,
"(E) a general assistance recipient, or
"(F) a youth participating in a cooperative education
program, or
"(G) an economically disadvantaged ex-convict.
"(2) VOCATIONAL REHABILITATION REFERRAL.—The term 'voca-
tional rehabilitation referral' means any individual who is certi-
fied by the designated local agency as—
"(A) having a physical or mental disability which, for such
individual, constitutes or results in a substantial handicap to
employment, and
i "(B) having been referred to the employer upon comple-
tion of (or while receiving) rehabilitative services pursuant
to—
"(i) an individualized written rehabilitation plan
under a State plan for vocational rehabilitation services
approved under the Rehabilitation Act of 1973, or 29 USC 701
"(ii) a program of vocational rehabilitation carried out note.
under chapter 31 of title 38, United States Code.
"(3) ECONOMICALLY DISADVANTAGED YOUTH.—
"(A) IN GENERAL.—The term 'economically disadvantaged
youth' means any individual who is certified by the designat-
ed local agency as—
"(i) meeting the age requirements of subparagraph
(B), and
"(ii) being a member of an economically disadvan-
taged family (as determined under paragraph (9)).
"(B) AGE REQUIREMENTS.—An individual meets the age
requirements of this subparagraph if such individual has
attained age 18 but not age 25 on the hiring date.
"(4) VIETNAM VETERAN WHO IS A MEMBER OF AN ECONOMICALLY
DISADVANTAGED FAMILY.—The term 'Vietnam veteran who is a
member of an economically disadvantaged family' means any
individual who is certified by the designated local agency as—
92 STAT. 2832 PUBLIC LAW 95-600—NOV. 6, 1978
"(A)(i) having served on active day (other than active duty
for training) in the Armed Forces of the United States for a
period of more than 180 days, any part of which occurred
after August 4,1964, and before May 8,1975, or
"(ii) having been discharged or released from active duty
in the Armed Forces of the United States for a service-
connected disability if any part of such active duty was
performed after August 4, 1964, and before May 8, 1975,
"(B) not having any day during the premployment period
which was a day of extended active duty in the Armed Forces
of the United States,
"(C) being a member of an economically disadvantaged
family (determined under paragraph (9)), and
"(D) not having attained the age of 35 on the hiring date.
For purposes of subparagraph (B), the term 'extended active
duty means a period of more than 90 days during which the
individual was on active duty (other than active duty for train-
ing).
"(5) SSI RECIPIENTS.—The term 'SSI recipient' means any
individual who is certified by the designated local agency as
receiving supplemental security income benefits under title XVI
42 use 1381. of the Social Security Act (including supplemental security
42 use I382e. income benefits of the type described in section 1616 of such Act
87 Stat. 155. or Section 212 of Public Law 93-66) for any month ending in the
pre-employment period.
"(6) GENERAL ASSISTANCE RECIPIENTS.—
"(A) IN GENERAL.—The term 'general assistance recipient'
means any individual who is certified by the designated local
agency as receiving assistance under a qualified general
assistance program for any period of not less than 30 days
ending within the preemployment period.
"(B) QUALIFIED GENERAL ASSISTANCE PROGRAM.—The term
'qualified general assistance program' means any program
of a State or a political subdivision of a State—
"(i) which provides general assistance or similar as-
sistance which—
"(I) is based on need, and
"(II) consists of money payments, and
"(ii) which is designated by the Secretary (after con-
sultation with the Secretary of Health, Education, and
Welfare) as meeting the requirements of clause (i).
"(7) ECONOMICALLY DISADVANTAGED EX-CONVICT.—The term
'economically disadvantaged ex-convict' means any individual
who is certified by the designated local agency—
"(A) as having been convicted of a felony under any statute
of the United States or any State,
"(B) as being a member of an economically disadvantaged
family (as determined under paragraph (9)), and
"(C) as having a hiring date which is not more than 5 years
after the last date on which such individual was so convicted
or was released from prison.
"(8) YOUTH PARTICIPATING IN A QUAUFIED COOPERATIVE EDUCA-
TION PROGRAM.—
"(A) I N GENERAL.—The term 'youth participating in a
qualified cooperative education program' means any individ-
ual who is certified by the school participating in the
program as—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2833
"(i) having attained age 16 and not having attained
age 19,
"(ii) not having graduated from a high school or
vocational school, and
"(iii) being enrolled in and actively pursuing a quali-
fied cooperative education program.
"(B) QUALIFIED COOPERATIVE EDUCATION PROGRAM DE-
FINED.—The term 'qualified cooperative education program'
means a program of vocational education for individuals
who (through written cooperative arrangements between a
qualified school and 1 or more employers) receive instruction
(including required academic instruction) by alternation of
study and school with a job in any occupational field (but
only if these 2 experiences are planned by the school and
employer so that each contributes to the student's education
and employability).
"(C) QUALIFIED SCHOOL DEFINED.—The term 'qualified
school' means—
"(i) a specialized high school used exclusively or prin-
cipally for the provision of vocational education to
individuals who are available for study in preparation
for entering the labor market,
"(ii) the department of a high school exclusively or
principally used for providing vocational education to
persons who are available for study in preparation for
entering the labor market, or
"(iii) a technical or vocational school used exclusively
or principally for the provision of vocational education
to persons who have completed or left high school and
who are available for study in preparation for entering
the labor market.
A school which is not a public school shall be treated as a
qualified school only if it is exempt from tax under section
501(a). 26 use 501.
"(D) INDIVIDUAL MUST BE CURRENTLY PURSUING PRO-
GRAM.—Wages shall be taken into account with respect to a
qualified cooperative education program only if the wages
are attributable to services performed while the individual ^^
meets the requirements of subparagraph (A).
"(9) MEMBERS OF ECONOMICALLY DISADVANTAGED FAMILIES.—An
individual is a member of an economically disadvantaged family
if the designated local agency determines that such individual
was a member of a family which had an income during the 6
months immediately preceding the month in which the hiring
date occurs, which, on an annual basis would be less than 70
percent of the Bureau of Labor Statistics lower living standard.
"(10) PREEMPLOYMENT PERIOD.—The term 'preemployment
period' means the 60-day period ending on the hiring date.
"(11) HIRING DATE.—The term 'hiring date' means the day the
individual is hired by the employer.
"(12) DESIGNATED LOCAL AGENCY.—The term 'designated local
agency' means the agency for any locality designated jointly by ^
the Secretary and the Secretary of Labor to perform certification
of employees for employer in that locality.
"(e) QUALIFIED FIRST-YEAR WAGES CANNOT EXCEED 30 PERCENT OF
FUTA WAGES FOR ALL EMPLOYEES.—The amount of the qualified
first-year wages which may be taken into account under subsection
92 STAT. 2834 PUBLIC LAW 95-600—NOV. 6, 1978
(a)(1) for any taxable year shall not exceed 30 percent of the aggregate
unemployment insurance wages paid by the employer during the
calendar year ending in such taxable year. For purposes of the
preceding sentence, the term 'unemployment insurance wages' has
26 use 3306. the meaning given to the term 'wages by section 3306(b).
"(f) REMUNERATION MUST B E FOR TRADE OR BUSINESS EMPLOY-
MENT.—
"(1) IN GENERAL.—For purposes of this subpart, remuneration
paid by an employer to an employee during any year shall be
taken into account only if more than one-half of the remunera-
tion so paid is for services performed in a trade or business of the
employer.
"(2) SPECIAL RULE FOR CERTAIN DETERMINATION.—Any determi-
nation as to whether paragraph (1), or subparagraph (A) or (B) of
subsection (h)(1), applies with respect to any employee for any
year shall be made without regard to subsections (a) and (b) of
26 use 52. section 52.
"(3) YEAR DEFINED.—For purposes of this subsection and sub-
section (h), the term 'year' means the taxable year; except that,
for purposes of applying so much of such subsections as relates to
subsection (e), such term means the calendar year.
"(g) SECRETARY OF LABOR TO NOTIFY EMPLOYERS OF AVAILABILITY OF
CREDIT.—The Secretary of Labor, in consultation with the Internal
Revenue Service, shall take such steps as may be necessary or
appropriate to keep employers apprised of the availability of the
Infra. Credit provided by section 44B.
"(h) SPECIAL RULES FOR AGRICULTURAL LABOR AND RAILWAY
LABOR.—For purposes of this subpart—
"(1) UNEMPLOYMENT INSURANCE WAGES.—
"(A) AGRICULTURAL LABOR.—If the services performed by
any employee for an employer during more than one-half of
any pay period (within the meaning of section 3306(d)) taken
into account with respect to any year constitute agricultural
labor (within the meaning of section 3306(k)), the term
'unemployment insurance wages' means, with respect to the
remuneration paid by the employer to such employee for
such year, an amount equal to so much of such remuneration
26 use 3121. as constitutes 'wages' within the meaning of section 3121(a),
except that the contribution and benefit base for each
calendar year shall be deemed to be $6,000.
"(B) RAILWAY LABOR.—If more than one-half of remunera-
tion paid by an employer to an employee during any year is
remuneration for service described in section 3306(c)(9), the
term 'unemployment insurance wages' means, with respect
to such employee for such year, an amount equal to so much
of the remuneration paid to such employee during such year
which would be subject to contributions under section 8(a) of
the Railroad Unemployment Insurance Act (45 U.S.C. 358(a))
if the maximum amount subject to such contributions were
$500 per month.
"(2) WAGES.—In any case to which subparagraph (A) or (B) of
paragraph (1) applies, the term 'wages' means unemployment
insurance wages (determined without regard to any dollar limi-
tation)."
Ot)) JOBS CREDIT MADE ELECTIVE.—
26 use 44B. (1) Section 44B (relating to credit for employment of certain
new employees) is amended—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2835
(A) by striking out "There shall be allowed" in subsection
(a) and inserting in lieu thereof "At the election at the
taxpayer, there shall be allowed", and
(6) by adding at the end thereof the following new subsec-
tion:
"(c) ELECTION.—
"(1) TIME FOR MAKING ELECTION.—An election under subsection
(a) for any taxable year may be made (or revoked) at any time
before the expiration of the 3-year period beginning on the last
date prescribed by law for filing the return for such taxable year
(determined without regard to extensions).
"(2) MANNER OP MAKING ELECTION.—Any election under sub-
section (a) (or revocation thereof) shall be made in such manner
as the Secretary may be regulations prescribe."
(2) Section 6501 (relating to limitations on assessment and 26 use 6501.
collection) is amended by adding at the end thereof the following
new subsection:
"(q) DEFICIENCY ATTRIBUTABLE TO ELECTION UNDER SECTION 44B.— 26 use 44B.
The period for assessing a deficiency attributable to any election
under section 44B (or any revocation thereof) shall not expire before
the date 1 year after the date on which the Secretary is notified of
such election (or revocation)."
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) AMENDMENTS OF SECTION 52.— 26 use 52.
(A) Section 52 (relating to special rules for computing
credit for employment of certain new employees) is
amended—
(i) by striking out subsections (c), (e), (i), and (j), and
(ii) by redesignating subsections (d), (f), (g), and (h) as
subsections (c), (d), (e), and (f), respectively.
(B) Subsections (a) and (b) of section 52 are each amended
by striking out "proportionate contribution to the increase
in unemployment insurance wages" and inserting in lieu
thereof "proportionate share of the wages".
(C) Subsection (e) of section 52 (as redesignated by subpara-
graph (A)) is amended—
(i) by adding "and" at the end of paragraph (1);
(ii) by striking out ", and" at the end of paragraph (2)
and inserting a period; and
(iii) by striking out paragraph (3).
(2) AMENDMENTS OF SECTION 53.— 26 use 53.
(A) Subsection (a) of section 53 is amended by striking out
"the amount of the tax imposed by this chapter for the
taxable year, reduced by" and inserting in lieu thereof "90
percent of the excess of the tax imposed by this chapter for
the taxable year over the sum of'.
(B) Section 53 (relating to limitation based on amount of
tax is amended by striking out subsection (b) and by redesig-
nating subsection (c) as subsection (b),
(d) EFFECTIVE DATE.— 26 use 5i note.
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to
amounts paid or incurred after December 31, 1978, in taxable
years ending after such date.
(2) SPECIAL RULES FOR NEWLY TARGETED GROUPS.—
If (A) INDIVIDUAL MUST BE HIRED AFTER SEPTEMBER 26,1978.—
In the case of a member of a newly targeted g r o u p s
92 STAT. 2836 PUBLIC LAW 95-600—NOV. 6, 1978
(i) such individual shall be taken into account for
purposes of the credit allowable by section 44B of the
Ante, p. 2834. Internal Revenue Code of 1954 only if such individual is
first hired by the employer after September 26,1978, and
(ii) such individual shall be treated for purposes of
such credit as having first begun work for the employer
not earlier than January 1,1979.
(B) MEMBER OF NEWLY TARGETED GROUP DEFINED.—^For
purposes of subparagraph (A), an individual is a member of a
newly targeted group if—
(i) such individual meets the requirements of subpara-
graph (A), (C), (D), (E), (F), or (G) of section 51(d)(1) of
Ante, p. 2830. such Codo, and
(ii) in the case of an individual meeting the require-
ments of subparagraph (A) of such section 51(d)(1), a
credit was not claimed for such individual by the tax-
payer for a taxable year beginning before January 1,
1979.
(3) TRANSITIONAL RULE.—In the case of a taxable year which
begins in 1978 and ends after December 81,1978, the amount of
the credit allowable by section 44B of the Internal Revenue Ckxle
26 use 53. of 1954 (determined without regard to section 53 of such Code)
shall be the sum of—
(A) the amount of the credit which would be so allowable
without regard to the amendments made by this section,
plus
(B) the amount which would be so allowable by reason of
the amendments made by this section.
26 use 53 note. (4) SUBSECTION (c)(2).—The amendments made by subsection
(u)(2) shall apply to taxable years beginning after December 31,
1978.
SEC. 322. WORK INCENTIVE PROGRAM CREDIT CHANGES.
26 use 50A. (a) CHANGES IN AMOUNT OF CREDIT.—Section 50A(a) (relating to
amount of credit) is amended by striking out paragraphs (1) and (2)
and inserting in lieu thereof the following:
"(1) GENERAL RULE.—The amount of the credit allowed by
26 use 40. section 40 for the taxable year shall be equal to the sum of—
"(A) 50 percent of the first-year work incentive program
expenses, and
(B) 25 percent of the second-year work incentive program
expenses.
"(2) LIMITATION BASED ON AMOUNT OF TAX.—Notwithstanding
paragraph (1), the amount of the credit allowed by section 40 for
the taxable year shall not exceed the liability for tax for the
taxable year.".
26 use 50A. (b) CHANGES IN LIMITATIONS.—Subsection (a) of section 50A is
amended by striking out paragraphs (4), (5), and (6) and by inserting
immediately after paragraph (3) the following new paragraph:
"(4) LIMITATION WITH RESPECT TO NONBUSINESS ELIGIBLE
EMPLOYEES.—
"(A) IN GENERAL.—In the case of any work incentive
program expenses paid or incurred by the taxpayer during
the taxable year to eligible employees whose services are not
performed in connection with a trade or business of the
taxpayer—
"(i) paragraph (1)(A) shall be applied by substituting
*35 percent for '50 percent',
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2837
' "(ii) subparagraph (B)ofparagraph(l) shall not apply,
and
"(iii) the aggregate amount of such work incentive
program expenses which may be taken into account
under paragraph (1) for such taxable year may not
exceed $12,000.
"(B) DEPENDENT CARE CREDIT MAY NOT BE CLAIMED.—No
credit shall be allowed under section 44A with respect to any ^nte, p. 2834.
amounts paid or incurred by the taxpayer with respect to
which the taxpayer is allowed a credit under section 40. 26 USC 40.
"(C) MARRIED INDIVIDUALS.—In the case of a husband or
wife who files a separate return, subparagraph (A) shall be
applied by substituting '$6,000' and '$12,000'. The preceding
sentence shall not apply if the spouse of the taxpayer has no
work incentive program expenses described in such subpara-
graph for the taxable year.".
(c) REPEAL OF PROVISIONS PERMITTING RECOVERY OF CREDIT.—
Section 50A is amended by striking out subsections (c) and (d). 26 USC 50A.
(d) CHANGES IN DEFINITIONS AND SPECIAL RULES.—
(1) Subsection (a) of section 50B (relating to work incentive 26 USC 50B.
program expenses) is amended to read as follows:
"(a) WORK INCENTIVE PROGRAM EXPENSES.—For purposes of this
subpart—
"(1) IN GENERAL.—The term 'work incentive program ex-
penses' means the amount of wages paid or incurred by the
taxpayer for services rendered by eligible employees.
"(2) FIRST-YEAR WORK INCENTIVE PROGRAM EXPENSES.—The
term 'first-year work incentive program expenses' means, with
respect to any eligible employee, work incentive program ex-
penses attributable to service rendered during the one-year
period which begins on the day the eligible employee begins work
for the taxpayer.
"(3) SECOND-YEAR WORK INCENTIVE PROGRAM EXPENSES.—The
term 'second-year work incentive program expenses' means,
with respect to any eligible employee, work incentive program
expenses attributable to service rendered during the one-year
period which begins on the day after the last day of the one-year
period described in paragraph (2).
"(4) LIMITATION ON AMOUNT OF WORK INCENTIVE PROGRAM
EXPENSES.—Theamountof the work incentive program expenses
taken into account with respect to any eligible employee for any
one-year period described in paragraph (2) or (3) (as the case may
be) shall not exceed $6,000."
(2) Subsection (c) of section 50B is amended by striking out
paragraphs (1) and (4) and by redesignating paragraphs (2), (3),
and (5) as paragraphs (1), (2), and (3), respectively.
(3) Subsection (e) of section 50B (relating to estates and trusts)
is amended—
(A) by inserting "and" at the end of paragraph (1),
(B) by striking out ", and" at the end of paragraph (2) and
inserting in lieu thereof a period, and
(C) by striking out paragraph (3).
(4) Section SOB is amended by redesignating subsections (g) and
(h) as subsections (h) and (i), respectively, and by inserting after
subsection (f) the following new subsection:
"(g) SPECIAL RULES FOR CONTROLLED GROUPS.—
92 STAT. 2838 PUBLIC LAW 95-600—NOV. 6, 1978
"(1) CONTROLLED GROUP OF CORPORATIONS.—For purposes of
this subpart, all employees of all corporations which are mem-
bers of the same controlled group of corporations shall be treated
as employed by a single employer. In any such case, the credit (if
26 use 40. any) allowable by section 40 to each such member shall be its
proportionate share of the work incentive program expenses
giving rise to such credit. For purposes of this subsection, the
term 'controlled group of corporations' has the meaning given to
26 use 1563. such term by section 1563(a), except that—
"(A) 'more than 50 percent' shall be substituted for *at
least 80 percent' each place it appears in section 1563(aXl),
and
"(B) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
"(2) EMPLOYEES OF PARTNERSHIPS, PROPRIETORSHIPS, ETC., WHICH
ARE UNDER COMMON CONTROL.—For purposes of this subpart,
under regulations prescribed by the Secretary—
"(A) all employees of trades or business (whether or not
incorporated) which are under common control shall be
treated as employed by a single employer, and
26 use 40. "(B) the credit (if any) allowable by section 40 with respect
to each trade or business shall be its proportionate share of
the work incentive program expenses giving to such credit.
The regulations prescribed under this paragraph shall be based
on principles similar to the principles which apply in the case of
paragraph (1)."
(5) Paragraph (1) of subsection (h) (as redesignated by para-
26 use SOB. graph (4)) of section 50B (relating to eligible employee) is
amended to read as follows:
"(1) EuGiBLE EMPLOYEE.—For purposes of this subpart the
term 'eligible employee' means an individual—
"(A) who has been certified by the Secretary of Labor or by
the appropriate agency of State or local government as—
"(i) being eligible for financial assistance under part A
42 use 601. of title IV of the Social Security Act and as having
continually received such financial assistance during
the 9-day period which immediately precedes the date
on which such individual is hired by the employer, or
"(ii) having been placed in employment under a work
incentive program established under section 432(bXl) of
42 use 632. the Social Security Act,
"(B) who has been employed by the taxpayer for a period in
excess of 30 consecutive days on a substantially full-time
basis,
"(C) who has not displaced any other individual from
emplojnnent by the taxpayer, and
"(D) who is not a migrant worker.
The term 'eligible employee' includes an employee of the tax-
payer whose services are not performed in connection with a
trade or business of the taxpayer.",
(d) DEDUCTION FOR WAGES REDUCED BY AMOUNT OF CREDIT.—
26 use 28oe. (1) Section 280C (relating to portion of wages for which credit is
Ante, p. 2834. claimed under section 44B) is amended—
(A) by striking our "SECTION 44B" in the caption and
inserting in lieu thereof "SECTION 40 OR 44B",
(B) by inserting "Ot>) RULE FOR SECTION 44B CREDIT.—"
immediately before "No deduction",
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2839
(C) by striking out "this section shall be applied" and
inserting in lieu thereof "this subsection shall be applied" in
the second sentence, and
(D) by inserting immediately after the caption of such -
section the following new subsection:
"(a) RULE FOR SECTION 40 CREDIT.—No deduction shall be allowed 26 USC 40.
for that portion of the work incentive program expenses paid or
incurred for the taxable year which is equal to the amount of the
credit allowable for the taxable year under section 40 (relating to
credit for expenses of work incentive programs) determined without
regard to the provisions of section 50A(a)(2) (relating to limitation Ante, p. 2836.
based on amount of tax). In the case of a corporation which is a
member of a controlled group of corporations (within the meaning of
section 50B(g)(l)) or a trade or business which is treated as being Ante, p. 2837.
under common control with other trades or businesses (within the
meaning of section 50B(g)(2), this subsection shall be applied under
rules prescribed by the Secretary similar to the rules applicable
under paragraphs (1) and (2) of section 50B(g).".
(e) EFFECTIVE D A T E . — 26 USC 50A
(1) I N GENERAL.—Except as otherwise provided in this subsec- "ot^.
tion, the amendments made by this section shall apply to work
incentive program expenses paid or incurred after December 31,
1978, in taxable years ending after such date; except that so
much of the amendment made by subsection (a) as affects section
50A(a)(2) of the Internal Revenue Code of 1954 shall apply to
taxable years beginning after December 31,1978.
(2) SPECIAL RULES FOR CERTAIN ELIGIBLE EMPLOYEES.—
(A) ELIGIBLE EMPLOYEES HIRED BEFORE SEPTEMBER 27,
1978.—In the case of any eligible employee (as defined in
section 50B(h)) hired before September 27, 1978, no credit Ante, p. 2837.
shall be allowed under section 40 with respect to second-year
work incentive program expenses (as defined in section
50B(a)) attributable to service performed by such employee. Ante, p. 2837.
(B) ELIGIBLE EMPLOYEES HIRED AFTER SEPTEMBER 26,1978.—
In the case of any eligible employee (as defined in section
50B(h)) hired after September 27,1978, such individual shall
be treated for purposes of the credit allowed by section 40 as 26 USC 40.
having first begun work for the taxpayer not earlier than
January 1,1979.
Subtitle D—Tax-Exempt Bonds
PART I—INDUSTRIAL DEVELOPMENT BONDS
SEC. 331. INCREASE IN LIMIT ON SMALL ISSUES OF INDUSTRIAL DEVEL-
OPMENT BONDS.
(a) GENERAL RULE.—Subparagraph (D) of section 103(b)(6) (relating 26 USC 103.
to $5,000,000 limit in certain cases) is amended by striking out
"$5,000,000" in the heading and in the text and inserting in lieu
thereof "$10,000,000".
(b) TREATMENT OF CERTAIN URBAN DEVELOPMENT ACTION
GRANTS.—Paragraph (6) of section 103(b) (relating to exemption for
certain small issues) is amended by adding at the end thereof the
following new subparagraph:
"(I) AGGREGATE AMOUNT OF CAPITAL EXPENDITURES WHERE
THERE IS URBAN DEVELOPMENT ACTION GRANT.—In the case of
any issue substantially all of the proceeds of which are to be
92 STAT. 2840 PUBLIC LAW 95-600—NOV. 6, 1978
used to provide facilities with respect to which an urban
development action grant has been made under section 119
42 use 5301 of the Housing and Community Development Act of 1974,
note. capital expenditures of not to exceed $10,000,000 shall not be
taken into account for purposes of applying subparagraph
(D)(ii)."
26 use 103 (c) EFFECTIVE DATES.—
"°*^- (1) The amendments made by subsection (a) shall apply to—
(A) obligations issued after December 31, 1978, in taxable
years ending after such date, and
(B) capital expenditures made after December 31, 1978,
with respect to obligations issued before January 1, 1979.
(2) The amendment made by subsection 0^) shall apply to—
(A) obligations issued after September 30,1979, in taxable
years ending after such date, and
(B) capital expenditures made after September 30, 1979,
with respect to obligations issued after such date.
SEC. 332. LOCAL FURNISHING OF ELECTRIC ENERGY.
26 use 103. (a) IN GENERAL.—Paragraph (4) of section 103(b) (relating to certain
exempt activities) is amended by adding at the end thereof the
following new sentence:
"For purposes of subparagraph (E), the local furnishing of
electric energy from a facility shall include furnishing solely
within the area consisting of a city and 1 contiguous county."
26 use 103 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall
note- apply to taxable years ending after April 30, 1968, but only with
respect to obligations issued after such date.
SEC. 333. INDUSTRIAL DEVELOPMENT BONDS FOR WATER FACILITIES.
26 use 103. (a) IN GENERAL.—Subparagraph (G) of section 103(b)(4) (relating to
industrial development bonds) is amended to read as follows:
"(G) facilities for the furnishing of water for any purpose
if—
"(i) the water is or will be made available to members
of the general public (including electric utility, indus-
trial, agricultural, or commercial users), and
"(ii) either the facilities are operated by a governmen-
tal unit or the rates for the furnishing or sale of the
water have been established or approved by a State or
political subdivision thereof, by an agency or instrumen-
tality of the United States, or by a public service or
public utility commission or other similar body of any
State or political subdivision thereof."
26 use 103 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall
note. apply to obligations issued after the date of the enactment of this Act
in taxable years ending after such date.
SEC. 334. A D V A N C E REFUNDING OF INDUSTRIAL DEVELOPMENT
BONDS FOR CERTAIN PUBLIC WORKS.
26 use 103. (a) I N GENERAL.—Subsection Oa) of section 103 (relating to indus-
trial development bonds) is amended by redesignating paragraph (7)
as paragraph (8) and by inserting after paragraph (6) the following
new paragraph:
"(7) ADVANCE REFUNDING OF QUALIFIED PUBLIC FACILITIES.—
"(A) I N GENERAL.—Paragraph (1) shall not apply to a
refunding issue if substantially all the proceeds of the
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2^541
refunded issue were used to provide a qualified public
facility.
"(B) QUALIFIED PUBUC FACIUTY DEFINED.—For purposes of
subparagraph (A), the term 'qualified public facility' means
facilities described in subparagraph (C) or (D) of paragraph
(4) which are generally available to the general public."
(b) OBUGATION MAY NOT B E HELD BY SUBSTANTIAL USER.—Para- 26 use 103.
graph (8) of section 103(b) (as redesignated by subsection (a)) is
amended by striking out "and (6)" and inserting in lieu thereof "(6),
and (7)".
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 103
apply to obligations issued after the date of the enactment of this "ot^.
Act.
PART II—OTHER TAX-EXEMPT BOND PROVISIONS
SEC. 336. DECLARATORY JUDGMENT PROCEDURE FOR JUDICIAL REVIEW
OF DETERMINATIONS RELATING TO GOVERNMENTAL OBLI-
GATIONS.
(a) IN GENERAL.—Part IV of subchapter C of chapter 76 (relating to
declaratory judgments) is amended by adding at the end thereof the
following new section:
"SEC. 7478. DECLARATORY JUDGMENTS RELATING TO STATUS OF CER. 26 USC 7478.
TAIN GOVERNMENTAL OBLIGATIONS.
"(a) CREATION OF REMEDY.—In a case of actual controversy
involving—
"(1) a determination by the Secretary whether prospective
obligations are described in section 103(a), or 26 USC 103.
"(2) a failure by the Secretary to make a determination with
respect to any matter referred to in paragraph (1),
upon the filing of an appropriate pleading, the Tax Court may make a
declaration whether such prospective obligations are described in
section 103(a). Any such declaration shall have the force and effect of
a decision of the Tax Court and shall be reviewable as such.
"(b) LIMITATIONS.—
"(1) PETITIONER.—A pleading may be filed under this section
only by the prospective issuer.
"(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.—The court
shall not issue a declaratory judgment or decree under this
section in any proceeding unless it determines that the petitioner
has exhausted all available administrative remedies within the
Internal Revenue Service. A petitioner shall be deemed to have
exhausted its administrative remedies with respect to a failure of
the Secretary to make a determination with respect to an issue of
obligations at the expiration of 180 days after the date on which
the request for such determination was made if the petitioner
has taken, in a timely manner, all reasonable steps to secure
such determination.
"(3) TIME FOR BRINGING ACTION.—If the Secretary sends by
certified or registered mail notice of his determination as de-
scribed in subsection (a)(1) to the petitioner, no proceeding may
be initiated under this section unless the pleading is filed before
the 91st day after the date of such mailing.
(b) AUTHORITY OF TAX COURT To ASSIGN PROCEEDINGS TO COMMIS-
SIONERS.—
(1) I N GENERAL.—Subsection (c) of section 7456 (relating to 26 USC 7456.
commissioners of the Tax Court) is amended by adding at the end
thereof the following new sentence: "The chief judge may assign
39-194 O—80—pt. 3 14 : QL3
92 STAT. 2842 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 7428, proceedings under sections 7428,7476,7477, and 7478 to be heard
7476, 7477, {,y I\IQ commissioners of the court, and the court may authorize a
^'^^^- commissioner to make the decision of the court with respect to
such proceedings, subject to such conditions and review as the
court may by rule provide."
(2) TECHNICAL AMENDMENTS.—
26 use 7476. (A) Section 7476 is amended by striking out subsection (c)
and by redesignating subsections (d) and (e) and subsections
(c) and (d), respectively.
26 use 7477. (B) Section 7477 is amended by striking out subsection (c).
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
26 use 7482. (1) Paragraph (1) of section 74820)) (relating to venue for appeal
of decision of Tax Court) is amended—
(A) by striking out "provided in paragraph (2)" in para-
graph (1) and inserting in lieu thereof "provided in para-
graphs (2) and (3)", and
(B) by adding at the end thereof the following new
paragraph:
"(3) DECLARATORY JUDGMENT ACTIONS RELATING TO STATUS OF
CERTAIN GOVERNMENTAL OBLIGATIONS.—In the case of any deci-
26 use 7478. gion of the Tax Court in a proceeding under section 7478, such
decision may only be reviewed by the Court of Appeals for the
- District of Columbia."
(2) The table of sections for part IV of subchapter C of chapter
26 use 7476. 76 is amended by adding at the end thereof the following new
item:
"Sec. 7478. Declaratory judgments relating to status of certain governmental
obligations."
26 use 7478 (d) EFFECTIVE DATE.—The amendments made by this section shall
note- apply to requests for determinations made after December 81,1978.
SEC. 337. DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUND-
ING OF CERTAIN GOVERNMENTAL OBLIGATIONS.
26 use 103 (a) GENERAL RULE.—The payment to a charitable organization or a
"<***• refund profit held in a trust fund or escrow arrangement, or held by
an underwriter or other person under a qualified agreement in
accordance with that agreement—
(1) shall not cause the refunding obligations out of which the
refund profit arose to be treated as arbitrage bonds (within the
26 use 103. meaning of section 103(c) of the Internal Revenue Code of 1954)
and
(2) may be paid without penalty imposed on the issuer of such
obligations.
(b) RULE FOR GOVERNMENTS WHICH HAVE ALREADY PAID ARBITRAGE
PROFITS TO THE UNITED STATES.—In the case of a State or local
government which, before January 1,1977—
(1) requested in writing a rule by the Internal Revenue Service
with respect to the tax consequences of paying refund profit to
charitable organizations,
(2) failed to rieceive a favorable ruling and did not pay the
refund profit to a charitable organization, and
which accounted to the United States for refund profit by direct
payment to the United States, or by the purchase of low-interest
United States obligations, the Secretary of the Treasury shall pay,
out of any amounts in the Treasury not otherwise appropriated, an
^^, amount equal to the refund profit for which the State or local
overnment has accounted to the United States. Amounts paid to a
§ tate or local government under this subsection shall be distributed
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2843
to such charitable organizations within 90 days after the date on
which the payment is received by the State or local government in
the same manner as if the refund profit had not been paid to the
United States and met the requirements of subsection (a),
(c) DEFINITIONS.—For purposes of this section—
(1) REFUND PROFIT.—The term "refund profit" means interest,
profit, or other amounts generated by, or arising out of, the
advance refunding, before September 24,1976, of an obligation of
a State or local government described in section 103 of such Code. 26 USC 103.
(2) CHARITABLE ORGANIZATION.—The term "charitable organi-
zation" means an organization described in section 501(c)(3) of 26 USC 501.
such Code and exempt from taxation under section 501(a) of such
Code other than an organization described in section 509(a) of 26 USC 509.
such Code.
(3) QUALIFIED AGREEMENT.—The term "qualified agreement"
means an agreement (whether or not enforceable) which pro-
vides for, or contemplates, the payment of refund profit to one or
more charitable organizations.
(4) LOW-INTEREST UNITED STATES OBLIGATIONS.—The term "low-
interest United States obligations" means United States obliga-
; tions which bear an interest rate lower than the highest rate of
interest borne by public debt securities generally available for
purchase at the time such obligations were purchased.
Subtitle E—Small Business Provisions
PART I—PROVISIONS RELATING TO SUBCHAPTER S
SEC. 341. SUBCHAPTER S CORPORATIONS ALLOWED 15 SHAREHOLDERS.
(a) GENERAL RULE.—Paragraph (1) of section 1371(a) (defining small 26 USC 1371.
business corporation) is amended to read as follows:
"(1) have more than 15 shareholders;".
(b) TECHNICAL AMENDMENTS.—
(1) Section 1371 is amended by striking out subsection (e) and
by redesignating subsection (f) as subsection (e).
(2) Paragraph (2) of section 1371(a) is amended by striking out
"subsection (f)" and inserting in lieu thereof "subsection (e)".
SEC. 342. PERMITTED SHAREHOLDERS OF SUBCHAPTER S CORPORA-
TIONS.
(a) HUSBAND AND WIFE TREATED AS O N R INDIVIDUAL.—Subsection
(c) of section 1371 (relating to stock owned by husband and wife) is
amended to read as follows:
"(c) STOCK OWNED BY HUSBAND AND WIFE.—For purposes of subsec-
tion (a)(1), a husband and wife (and their estates) shall be treated as
one shareholder."
(b) GRANTOR OF GRANTOR TRUST TREATED AS THE SHAREHOLDER.—
Subsection (e) of section 1371 (as redesignated by section 331(b)(1) of
this Act) is amended by inserting after the first sentence the follow-
ing new sentence: "In the case of a trust described in paragraph (1),
the grantor shall be treated as the shareholder."
SEC. 343. EXTENSION OF PERIOD FOR MAKING SUBCHAPTER S ELEC-
TIONS.
(a) GENERAL RULE.—Subsection (c) of section 1372 (relating to when 26 USC 1372.
and how subchapter S election may be made) is amended to read as
follows:
"(c) WHEN AND HOW MADE.—
"(1) I N GENERAL.—An election under subsection (a) may be
92 STAT. 2844 PUBLIC LAW 95-600—NOV. 6, 1978
^^ made by a small business corporation for any taxable year—
"(A) at any time during the preceding taxable year, or
"(B) at any time during the first 75 days of the t£ixable
year.
"(2) TREATMENT OF CERTAIN LATE ELECTIONS.—If—
"(A) a small business corporation makes an election under
subsection (a) for any taxable year, and
"(B) such election is made after the first 75 days of the
taxable year and on or before the last day of such taxable
year,
then such election shall be treated as made for the following
taxable year.
"(3) MANNER OF MAKING ELECTION.—An election under subsec-
tion (a) shall be made in such manner as the Secretary shall
prescribe by regulations."
(b) TECHNICAL AMENDMENTS.—
26 use 1372. (1) The second sentence of section 1372(a) is amended to read as
follows: "Such election shall be valid only if all persons who are
shareholders in such corporation on the day on which such
election is made consent to such election."
(2) Subparagraph (A) of section 1372(e)(1) is amended to read as
follows:
"(A) An election under subsection (a) made by a small
business corporation shall terminate if any person who was
not a shareholder in such corporation on the day on which
the election is made becomes a shareholder in such corpora-
tion and affirmatively refuses (in such manner as the Secre-
tary may by regulations prescribe) to consent to such elec-
tion on or before the 60th day after the day on which he
acquires the stock."
(3) Subparagraph (C) of section 1372(e)(1) is amended by insert-
ing "(or, if later, the first taxable year for which such election
would otherwise have been effective)" after "in the corporation".
SEC. 344. EFFECTIVE DATE.
26 use 1371 The amendments made by this part shall apply to taxable years
note. beginning after December 31,1978.
PART II—OTHER PROVISIONS
SEC. 345. SMALL BUSINESS CORPORATION STOCK.
(a) INCREASE TO $1,000,000 AMOUNT OF STOCK POTENTIALLY SUBJECT
TO ORDINARY LOSS TREATMENT; REMOVAL OF EQUITY CAPITAL TEST.—
26 use 1244. Subsection (c) of section 1244 (relating to losses on small business
stock) is amended by striking out paragraph (2) and inserting in lieu
thereof the following:
"(3) SMALL BUSINESS CORPORATION DEFINED.—
"(A) IN GENERAL.—For purposes of this section, a corpora-
tion shall be treated as a small business corporation if the
aggregate amount of money and other property received by
the corporation for stock, as a contribution to capital, and as
paid-in surplus, does not exceed $1,000,000. The determina-
tion under the preceding sentence shall be made as of the
time of the issuance of the stock in question but shall include
amounts received for such stock and for all stock theretofore
V issued.
"(B) AMOUNT TAKEN INTO ACCOUNT WITH RESPECT TO PROP-
ERTY.—For purposes of subparagraph (A), the amount taken
into account with respect to any property other than money
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2845
shall be the amount equal to the adjusted basis to the
corporation of such property for determining gain, reduced
by any liability to which the property was subject or which
was assumed by the corporation. The determination under
the preceding sentence shall be made as of the time the
property was received by the corporation."
(b) INCREASE IN MAXIMUM AMOUNT TREATED AS ORDINARY Loss FOR
ANY TAXABLE YEAR.—Subsection (b) of section 1244 is amended— 26 use 1244..
(1) by striking out "$25,000" in paragraph (1) and inserting in
lieu thereof "$50,000", and
(2) by striking out "$50,000" in paragraph (2) and inserting in
lieu thereof "$100,000".
(c) REMOVAL OP REQUIREMENT THAT STOCK ISSUANCE BE PURSUANT
TO PLAN.—Subsection (c) of section 1244 (defining section 1244 stock)
is amended by striking out paragraph (1) and inserting in lieu thereof
the following new paragraphs:
"(1) IN GENERAL.—For purposes of this section, the term
'section 1244 stock' means common stock in a domestic corpora-
tion if—
"(A) at the time such stock is issued, such corporation was
a small business corporation,
"(B) such stock was issued by such corporation for money
or other property (other than stock and securities), and
"(C) such corporation, during the period of its 5 most
recent taxable years ending before the date the loss on such
stock was sustained, derived more than 50 percent of its
aggregate gross receipts from sources other than royalties,
rents, dividends, interests, annuities, and sales or exchanges
of stocks or securities.
"(2) R U L E S FOR APPUCATION OF PARAGRAPH (i)(c).—
"(A) PERIOD TAKEN INTO ACCOUNT WITH RESPECT TO NEW
CORPORATIONS.—For purposes of paragraph (1)(C), if the
corporation has not been in existence for 5 taxable years
ending before the date the loss on the stock was sustained,
there shall be substituted for such 5-year period—
"(i) the period of the corporation's taxable years
ending before such date, or
"(ii) if the corporation has not been in existence for 1
taxable year ending before such date, the period such
corporation has been in existence before such date.
"(B) GROSS RECEIPTS FROM SALES OF SECURITIES.—For pur-
poses of paragraph (1)(C), gross receipts from the sales or
exchanges of stock or securities shall be taken into account
only to the extent of gains therefrom.
"(C) NONAPPUCATION WHERE DEDUCTIONS EXCEED GROSS
INCOME.—Paragraph (1)(C) shall not apply with respect to
any corporation if, for the period taken into account for
purposes of paragraph (1)(C), the amount of the deductions
allowed by this chapter (other than by sections 172,243,244,
and 245) exceeds the amount of gross income." 26 use 172,
(d) TECHNICAL AMENDMENTS.—Paragraph (2) of section 1244(d) 55^/,!^'o^"*^'
(relating to special rules) is amended— 2" ^^^ ^•^^•
(1) by striking out "subparagraph (E)" and inserting in lieu
thereof "subparagraph (C)', and
(2) by striking out "paragraphs (1)(E) and (2)(A)" and inserting
in lieu thereof "paragraphs (1)(C) and (3XA)".
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 1244
apply to stock issued after the date of the enactment of this Act. "ote.
92 STAT. 2846 PUBLIC LAW 95-600—NOV. 6, 1978
Subtitle F—Accounting Provisions
SEC. 351, TREATMENT OF CERTAIN CLOSELY HELD FARM CORPORA-
TIONS FOR PURPOSES OF RULE REQUIRING ACCRUAL
ACCOUNTING.
26 use 447. (a) GENERAL RULE.—Section 447 (relating to method of accounting
for corporations engaged in farming) is amended by adding at the end
thereof the following new subsection:
"(h) EXCEPTION FOR CERTAIN CLOSELY HELD CORPORATIONS.—
"(1) IN GENERAL.—This section shall not apply to any corpora-
tion if, on October 4,1976, and at all times thereafter—
"(A) members of 2 families (within the meaning of subsec-
tion (d)(1)) have owned (directly or through the application of
subsection (d)) at least 65 percent of the total combined
voting power of all classes of stock of such corporation
?? entitled to vote, and at least 65 percent of the total number of
1 shares of all other classes of stock of such corporation; or
"(B)(i) members of 3 families (within the meaning of
;. subsection (d)(1)) have owned (directly or through the appli-
cation of subsection (d)) at least 50 percent of the total
combined voting power of all classes of stock of such corpora-
tion entitled to vote, and at least 50 percent of the total
number of shares of all other classes of stock of such
corporation; and
"(ii) substantially all of the stock of such corporation
which is not so owned (directly or through the application of
subsection (d)) by members of such 3 families is owned
directly—
"(I) by employees of the corporation or members of
26 use 267. their families (within the meaning of section 267(cX4)),
or
"(II) by a trust for the benefit of the employees of such
26 use 401. corporation which is described in section 401(a) and
26 use 501. which is exempt from taxation under section 501(a).
"(2) STOCK HELD BY EMPLOYEES, ETC.—For purposes of this
subsection, stock which—
"(A) is owned directly by employes of the corporation or
members of their families (within the meaning of section
26 use 267. 267(c)(4)) or by a trust described in paragraph (l)(B)(ii)(II),
and
"(B) was acquired on or after October 4, 1976, from the
corporation or from a member of a family which, on October
4, 1976, was described in subparagraph (A) or (B)(i) of
paragraph (1),
shall be treated as owned by a member of a family which, on
October 4, 1976, was described in subparagraph (A) or (B)(i) of
paragraph (1).
"(3) CORPORATION MUST BE ENGAGED IN FARMING.—This subsec-
tion shall apply only in the case of a corporation which was, on
October 4,1976, and at all times thereafter, engaged in the trade
or business of farming."
26 use 447 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall
note. apply to taxable years beginning after December 31,1977.
SEC. 352. ACCOUNTING FOR GROWING CROPS.
26 use 447 (a) APPLICATION OF SECTION.—This section shall apply to a taxpayer
note. VvllO—
(1) is a farmer, nurseryman, or florist, ^i : VJ
(2) is on an accrual method of accounting, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2847
(3) is not required by section 447 of the Internal Revenue Code
of 1954 to capitalize preproductive period expenses. 26 USC 447.
(b) TAXPAYER MAY NOT B E REQUIRED TO INVENTORY GROWING
CROPS.—A taxpayer to whom this section applies may not be required
to inventory growing crops for any taxable year beginning after
December 31,1977.
(c) TAXPAYER MAY ELECT TO CHANGE TO CASH METHOD.—A tax-
payer to whom this section applies may, for any taxable year
beginning after December 31, 1977 and before January 1, 1981,
change to the cash receipts and disbursements method of accounting
with respect to any trade or business in which the principal activity is
growing crops.
(d) SECTION 481 OF CODE TO APPLY.—Any change in the way in 26 USC 481.
which a taxpayer accounts for the costs of growing crops resulting
from the application of subsection (b) or (c)—
(1) shall not require the consent of the Secretary of the
Treasury or his delegate, and
(2) shall be treated, for purposes of section 481 of the Internal "^ ':
Revenue Code of 1954, as a change in the method of accounting
initiated by the taxpayer.
(e) GROWING CROPS.—For purposes of this section, the term "grow-
ing crops" does not include trees grown for lumber, pulp, or other
nonlife purposes.
SEC. 353. TREATMENT OF CERTAIN FARMS FOR PURPOSES OF RULE RE-
QUIRING ACCRUAL ACCOUNTING.
(a) GENERAL RULE.—Section 447 (relating to method of accounting 26 USC 447.
for corporations engaged in farming) is amended by striking out
"nursery" in subsection (a) thereof and adding in lieu thereof
"nursery or sod farm".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 447
apply to taxable years beginning after December 31,1976. "f**^-
Subtitle G—Other Business Provisions
SEC 361. DISALLOWANCE OF CERTAIN DEDUCTIONS FOR YACHTS, HUNT-
ING LODGES, ETC.
(a) EXTENSION OF RULE DISALLOWING DEDUCTIONS FOR FACILITIES.—
So much of paragraph (1) of section 274(a) (relating to disallowance of 26 USC 274.
certain entertainment, etc., expenses) as follows subparagraph (A) is
amended to read as follows:
"(B) FACILITY.—With respect to a facility used in connec-
tion with an activity referred to in subparagraph (A).
In the case of an item described in subparagraph (A), the
deduction shall in no event exceed the portion of such item which
meets the requirements of subparagraph (A).".
(b) COUNTRY CLUBS.—Paragraph (2) of section 274(2) (relating to
special rules) is amended by adding at the end thereof the following
new subparagraph:
"(C) In the case of a country club, paragraph (1)(B) shall
apply unless the taxpayer establishes that the facility was
used primarily for the furtherance of the taxpayer's trade or
business and that the item was directly related to the active
conduct of such trade or business."
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 274
apply to items paid or incurred after December 31, 1978, in taxable "o^^-
years ending after such date.
92 STAT. 2848 PUBLIC LAW 95-600—NOV. 6, 1978
SEC. 362. DEFICIENCY DIVIDEND PROCEDURE FOR REGULATED INVEST-
MENT COMPANIES.
(a) GENERAL RULE.—Subchapter M of chapter 1 (relating to regu-
lated investment companies and real estate investment trusts) is
amended by adding at the end thereof the following new part:
"PART I I I - P R O V I S I O N S WHICH APPLY TO BOTH
REGULATED INVESTMENT COMPANIES AND REAL
ESTATE INVESTMENT TRUSTS
"Sec. 860. Deduction for deficiency dividends.
26 use 860. "SEC. 860. DEDUCTION FOR DEFICIENCY DIVIDENDS.
"(a) GENERAL RULE.—If a determination with respect to any quali-
fied investment entity results in any adjustment for any taxable year,
a deduction shall be allowed to such entity for the amount of
deficiency dividends for purposes of determining the deduction for
26 use 852, dividends paid (for purposes of section 852 or 857, whichever applies)
857. for such year.
"(b) QUALIFIED INVESTMENT ENTITY DEFINED.—For purposes of this
section, the term 'qualified investment entity' means—
"(1) a regulated investment company, and
"(2) a real estate investment trust.
"(c) RULES FOR APPLICATION OF SECTION.—
"(1) INTEREST AND ADDITIONS TO TAX DETERMINED WITH RESPECT
TO THE AMOUNT OF DEFICIENCY DIVIDEND DEDUCTION ALLOWED.—
For purposes of determining interest, additions to tax, and
additional amounts—
"(A) the tax imposed by this chapter (after taking into
account the deduction allowed by subsection (a)) on the
qualified investment entity for the taxable year with respect
to which the determination is made shall be deemed to be
increased by an amount equal to the deduction allowed by
subsection (a) with respect to such taxable year,
"(B) the last date prescribed for payment of such increase
in tax shall be deemed to have been the last date prescribed
for the payment of tax (determined in the manner provided
26 use 6601. by section 6601(b)) for the taxable year with respect to which
the determination is made, and
"(C) such increase in tax shall be deemed to be paid as of
the date the claim for the deficiency dividend deduction is
filed.
"(2) CREDIT OR REFUND,—If the allowance of a deficiency
dividend deduction results in an overpayment of tax for any
taxable year, credit or refund with respect to such overpayment
shall be made as if on the date of the determination 2 years
remained before the expiration of the period of limitations on the
filing of claim for refund for the taxable year to which the
overpayment relates.
"(d) ADJUSTMENT.—For purposes of this section—
"(1) ADJUSTMENT IN THE CASE OF REGULATED INVESTMENT COM-
PANY.—In the case of any regulated investment company, the
term 'adjustment' means—
"(A) any increase in the investment company taxable
income of the regulated investment company (determined
without regard to the deduction for dividends paid (as
26 use 561. defined in section 561)),
"(B) any increase in the amount of the excess described in
26 use 852. section 852(b)(3XA) (relating to the excess of the net capital
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2849
gain over the deduction for capital gain dividends paid), and
"(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital 26 USC 561. .
gains dividends.
"(2) ADJUSTMENT IN THE CASE OF REAL ESTATE INVESTMENT
TRUST.—In the case of any real estate investment trust, the term
'adjustment' means—
"(A) any increase in the sum of—
"(i) the real estate investment trust taxable income of
the real estate investment trust (determined without
regard to the deduction for dividends paid (as defined in
section 561) and by excluding any net capital gain), and
"(ii) the excess of the net income from foreclosure
property (as defined in section 857(b)(4)(B)) over the tax 26 USC 857.
on such income imposed by section 857(b)(4)(A),
"(B) any increase in the amount of the excess described in
section 857(b)(3)(A)(ii) (relating to the excess of the net
capital gain over the deduction for capital gains dividends
paid), and
"(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital 26 USC 561.
gains dividends.
"(e) DETERMINATION.—For purposes of this section, the term 'deter-
mination'means—
"(1) a decision by the Tax Court, or a judgment, decree, or other
order by any court of competent jurisdiction, which has become
final;
"(2) a closing agreement made under section 7121; or 26 USC 7121.
"(3) under regulations prescribed by the Secretary, an agree-
ment signed by the Secretary and by, or on behalf of, the
qualified investment entity relating to the liability of such entity
for tax.
"(f) EFFICIENCY DIVIDENDS.—
"(1) DEFINITION.—For purposes of this section, the term 'defi-
ciency dividends' means a distribution of property made by the
qualified investment entity on or after the date of the determina-
tion and before filing claim under subsection (g), which would
have been includible in the computation of the deduction for
dividends paid under section 561 for the taxable year with
respect to which the liability for tax resulting from the determi-
nation exists if distributed during such taxable year. No distribu-
tion of property shall be considered as deficiency dividends for
purposes of subsection (a) unless distributed within 90 days after
the determination, and unless a claim for a deficiency dividend
deduction with respect to such distribution is filed pursuant to
subsection (g).
"(2) LIMITATIONS.—
"(A) ORDINARY DIVIDENDS.—The amount of deficiency divi-
dends (other than deficiency dividends qualifying as capital
gain dividends) paid by a qualified investment entity for the
taxable year with respect to which the liability for tax
resulting from the determination exists shall not exceed the
sum of—
"(i) the excess of the amount of increase referred to in
subparagraph (A) of paragraph (1) or (2) of subsection (d)
(whichever applies) over the amount of any increase in
the deduction for dividends paid computed without
regard to capital gain dividends) for such taxable year
which results from such determination, and
92 STAT. 2850 PUBLIC LAW 95-600—NOV. 6, 1978
• ( "(ii) the amount of decreased referred to in subpara-
graph (C) of paragraph (1) or (2) of subsection (d) (which-
< ever applies).
"(B) CAPITAL GAIN DIVIDENDS.—The amount of deficiency
dividends qualifying as capital gain dividends paid by a
qualified investment entity for the taxable year with respect
to which the liability for tax resulting from the determina-
tion exists shall not exceed the amount by which (i) the
increase referred to in subparagraph (B) of paragraph (1) or
(2) of subsection (d) (whichever applies), exceeds (ii) the
amount of any dividends paid during such taxable year
which are designated as capital gain dividends after such
determination.
"(3) EFFECT ON DIVIDENDS PAID DEDUCTION.—
"(A) FOR TAXABLE YEAR IN WHICH PAID.—Deficiency divi-
dends paid in any taxable year shall not be included in the
amount of dividends paid for such year for purposes of
computing the dividends paid deduction for such year.
"(B) FOR PRIOR TAXABLE YEAR.—Deficiency dividends paid
in anj^ taxable year shall not be allowed for purposes of
26 use 855, section 855(a) or 858(a) in the computation of the dividends
858. paid deduction for the taxable year preceding the taxable
year in which paid.
"(g) CLAIM REQUIRED.—No deficiency dividend deduction shall be
allowed under subsection (a) unless (under regulations prescribed by
the Secretary) claim therefore is filed within 120 days after the date
of the determination.
"(h) SUSPENSION OF STATUTE OF LIMITATIONS AND STAY OF COLLEC-
TION.—
"(1) SUSPENSION OF RUNNING OF STATUTE.—If the qualified
investment entity files a claim as provided in subsection (g), the
26 use 6501. running of the statute of limitations provided in section 6501 on
the making of assessments, and the bringing of distraint or a
proceeding in court for collection, in respect of the deficiency
established by a determination under this section, and all inter-
est, additions to tax, additional amounts, or assessable penalties
in respect thereof, shall be suspended for a period of 2 years after
the date of the determination.
"(2) STAY OF COLLECTION.—In the case of any deficiency estab-
lished by a determination under this section—
"(A) the collection of the deficiency, and all interest,
additions to tax, additional amounts, and assessable penal-
ties in respect thereof, shall, except in cases of jeopardy, be
stayed until the expiration of 120 days after the date of the
determination, and
"(B) if claim for a deficiency dividend deduction is filed
under subsection (g), the collection of such part of the
deficiency as is not reduced by the deduction for deficiency
dividends provided in subsection (a) shall be stayed until the
date the claim is disallowed (in whole or in part), and if
disallowed in part collection shall be made only with respect
to the part disallowed.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (A) or (B) during the period for which the collec-
tion of such amount is stayed.
"(i) DEDUCTION DENIED IN CASE OF FRAUD.—No deficiency dividend
deduction shall be allowed under subsection (a) if the determination
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2851
contains a finding that any part of any deficiency attributable to an
adjustment with respect to the taxable year is due to fraud with
intent to evade tax or to willfuU failure to file an income tax return
within the time prescribed by law or prescribed by the Secretary in
pursuance of law.
"(j) PENALTY.—
"For assessable penalty with respect to liability for tax of a qualified
investment entity whicii is allowed a deduction under subsection (a), see
section 6697."
(b) ASSESSABLE PENALITIES.—Section 6697 (relating to assessable . _, . ^^
penalties with respect to liability for tax of real estate investment !, "
trusts) is amended to read as follows:
"SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR 26 USC 6697.
TAX OF QUALIFIED INVESTMENT ENTITIES.
"(a) CIVIL PENALTY.—In addition to any other penalty provided by
law, any qualified investment entity (as defined in section 860(b))
whose tax liability for any taxable year is deemed to be increased
pursuant to section 860(c)(1)(A) (relating to interest and additions to 26 USC 860.
tax determined with respect to the amount of the deduction for
deficiency dividends allowed) shall pay a penalty in an amount equal
to the amount of interest (for which such entity is liable) which is
attributable solely to such increase.
"(b) 50-PERCENT LIMITATION.—The penalty payable under this
section with respect to any determination shall not exceed one-half of
the amount of the deduction allowed by section 860(a) for such
taxable year.
"(c) DEFICIENCY PROCEDURES NOT T O APPLY.—Subchapter B of
chapter 63 (relating to deficiency procedure for income, estate, gift, 26 USC 6211.
and certain excise taxes) shall not apply in respect of the assessment
or collection of any penalty imposed by subsection (a)."
(c) LATE DESIGNATION AND PAYMENT OF CAPITAL GAIN DIVIDEND.— 26 use 852.
The first sentence of subparagraph (C) of section 852(b)(3) (defining •-
capital gain dividend) is amended by inserting before the period at
the end thereof the following: "; except that, if there is an increase in
the excess described in subparagraph (A) of this paragraph for such
year which results from a determination (as defined in section 860(e)), 26 USC 860.
such designation may be made with respect to such increase at any
time before the expiration of 120 days after the date of such
determination ".
(d) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 316(b) (relating to deficiency 26 USC 316.
dividend distributions by a real estate investment trust) is
amended—
(A) by striking out "section 859(d)" and inserting in lieu
thereof "section 860(0", and
Ei (B) by striking out "REAL ESTATE INVESTMENT TRUST" in the :- -.:
paragraph heading and inserting in lieu thereof "REGULATED
INVESTMENT COMPANY OR REAL ESTATE INVESTMENT TRUST".
(2) Paragraph (25) of section 381(c) is amended— 26 USC 381.
(A) by striking out "section 859(d)" and inserting in lieu
thereof "section 860(f)",
(B) by striking out "section 859" and inserting in lieu
thereof "section 860", and
(C) by striking out "REAL ESTATE INVESTMENT TRUST" in the
paragraph heading and inserting in lieu thereof "REGULATED
INVESTMENT COMPANY OR REAL ESTATE INVESTMENT TRUST".
(3) Subparagraph (C) of section 85705)(3) is amended by striking 26 USC 857.
out "section 859(c)" and inserting in lieu thereof "section 860(e) .
92 STAT. 2852 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 6422, (4) Sections 6422(14) and 6515(5) are each amended—
6515. (A) by inserting "regulated investment company or"
before "re£Q estate investment trust", and
(B) by striking out "859" and inserting in lieu thereof
"860",
26 use 6503. (5) Paragraph (5) of section 6503(i) is amended to read as
follows:
"(5) Deficiency dividends in the case of a reg^ulated investment company
or a real estate investment trust, see section 860(h)."
(6) Part II of subchapter M of chapter 1 is amended by striking out
26 use 859, section 859 and redesignating section 860 as section 859.
^^- (7) The table of sections for part II of subchapter M of chapter 1 is
simended by striking out the items relating to sections 859 and 860
and inserting in lieu thereof the following:
"Sec. 859. Adoption of annual accounting period."
(8) The table of parts for subchapter M of chapter 1 is amended
by adding at the end thereof the following new item:
"Part III. Provisions which apply to both regulated investment companies
and real estate investment trusts."
(9) The table of sections for subchapter B of chapter 68 is
26 use 6697. amended by striking out the item relating to section 6697 and
inserting in lieu thereof the following:
"Sec. 6697. Assessable penalties with respect to liability for tax of qualified
investment entities."
26 use 860 (e) EFFECTIVE DATE.—The amendments made by this section shall
"o*^- apply with respect to determinations (as defined in section 860(d) of
26 use 860. tne Interneil Revenue Code of 1954) after the date of the enactment of
this Act.
SEC. 363. REAL ESTATE INVESTMENT TRUST PROVISIONS.
(a) LIMITATIONS.—
26 use 856. (1) Section 856(cX2) (relating to limitations) is amended by
striking out the word "and" at the end of subparagraph (F), by
inserting the word "and" at the end of subparagraph (G), and by
adding the following new subparagraph at the end thereof:
"(H) gain from the sale or other disposition of a real estate
8isset which is not a prohibited transaction solely by reason
26 use 857. of section 857(b)(6);".
26 use 856. (2) Section 856(cX3) (relating to limitations) is amended by
striking out the word "and" at the end of subparagraph (F), by
inserting the word "and" at the end of subparagraph (G), and by
adding the following new subparagraph at the end thereof:
"(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason
of section 857(b)(6);".
26 use 856. (3) Subparagraph (B) of section 856(c)(4) (relating to limita-
tions) is amended to read as follows:
"(B) property in a transaction which is a prohibited trans-
action; and".
26 use 857. Qo,) PROHIBITED TRANSACTIONS.—Paragraph (6) of section 857(b)
(relating to income from prohibited transactions) is amended by
adding the following subparagraphs at the end thereof:
"(C) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED TRANS-
ACTIONS.—For purposes of this part, the term 'prohibited
transaction' does not include a sale of property which is a
real estate asset as defined in section 856(c)(6XB) if—
"(i) the trust has held the property for not less than 4
years;
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2853
"(ii) aggregate expenditures made by the trust, or any
partner of the trust, during the 4-year period preceding
the date of sale which are includible in the basis of the
property do not exceed 20 percent of the net selling price
of the property;
"(iii) during the taxable year the trust does not make
more than 5 sales of property (other than foreclosure
property); and
"(iv) in the case of property, which consists of land or
improvements, not acquired through foreclosure (or
deed in lieu of foreclosure), or lease termination, the
trust has held the property for not less than 4 years for
production of rental income.
"(D) SPECIAL RULES.—In applying subparagraph (C) the
following special rules apply:
"(i) The holding period of property acquired through
foreclosure (or deed in lieu of foreclosure), or termina-
tion of the lease, includes the period for which the trust
held the loan which such property secured, or the lease
of such property,
"(ii) In the case of a property acquired through foreclo-
sure (or deed in lieu of foreclosure), or termination of a
lease, expenditures made by, or for the account of, the
mortgagor or lessee after default became imminent will
be regarded as made by the trust.
"(iii) Expenditures (including expenditures regarded
as made directly by the trust, or indirectly by any
partner of the trust, under clause (ii)) will not be taken
into account if they relate to foreclosure property and
did not cause the property to lose its status as foreclo-
sure property.
"(iv) Expenditures will not be taken into account if
they are made solely to comply with standards or
requirements of any government or governmental au-
thority having relevant jurisdiction, or if they are made
to restore the property as a result of losses arising from
fire, storm or other casualty.
"(v) The term 'expenditures' does not include ad-
vances on a loan made by the trust.
"(vi) The sale of more than one property to one buyer
as part of one transaction constitutes one sale.
"(vii) The term 'sale' does not include any transaction
in which the net selling price is less than $10,000.
"(E) SALES NOT MEETING REQUIREMENTS.—In determining
whether or not any sale constitutes a 'prohibited transac-
tion'for purposes of subparagraph (A), the fact that such sale
does not meet the requirements of subparagraph (C) of this
paragraph shall not be taken into account; and such determi-
nation, in the case of a sale not meeting such requirements,
shall be made as if subparagraphs (C) and (D) had not been
enacted."
(c) EXTENSIONS.—Paragraph (3) of section 856(e) (relating to exten- 26 USC 856.
sions) is amended to read as follows:
"(3) EXTENSIONS.—If the real estate investment trust estab-
lishes to the satisfaction of the Secretary that an extension of the
grace period is necessary for the orderly liquidation of the trust's
interests in such property, the Secretary may grant one or more
extensions of the grace period for such property. Any such
92 STAT. 2854 PUBLIC LAW 95-600—NOV. 6, 1978
extension shall not extend the grace period beyond the date
which is 6 years after the date such trust acquired such
property."
26 use 856 (d) EFFECTIVE DATE.—The amendments made by subsections (a) and
note. (b) shall apply to taxable years ending after the date of the enactment
of this Act. The amendment made by subsection (c) shall apply to
extensions granted after the date of the enactment of this Act with
respect to periods beginning after December 31,1977.
SEC. 364. CONTRIBUTIONS IN AID OF CONSTRUCTION.
26 use 118. (a) IN GENERAL.—Section 118(b) (relating to contributions in aid of
construction) is amended—
(1) by striking out "water" in the portion of paragraph (1)
preceding subparagraph (A) thereof and inserting in lieu thereof
"electric energy, gas (through a local distribution system or
transportation by pipeline), water,";
(2) by striking out "water" in paragraph (1)(B) and inserting in
lieu thereof "electric energy, gas, steam, water,";
(3) by striking out "water" in paragraph (2)(A)(ii) and by
inserting in lieu thereof "electric energy, gas, steam, water,';
(4) by striking out "property" in paragraph (3)(A) and Jt)y
inserting in lieu thereof "line" and by striking out "a main water
or sewer line" in paragraph (3)(A) and by inserting in lieu thereof
"an electric line, a gas main, a steam line, or a main water or
sewer line"; and
(5) by amending paragraph (3)(C) to read as follows:
"(C) REGULATED PUBLIC UTILITY.—The term 'regulated
public utility' has the meaning given such term by section
26 use 7701. 7701(a)(33); except that such term shall not include any such
utility which is not required to provide electric energy, gas,
water, or sewerage disposal services to members of the
general public (including in the case of a gas transmission
utility, the provision of gas services by sale for resale to the
general public) in its service area."
26 use 118 (b) EFFECTIVE DATE.—The amendments made by this section shall
note- apply to contributions made after January 31,1976.
SEC. 365. LIABILITIES OF CONTROLLED CORPORATIONS.
26 use 357. (a) IN GENERAL.—Subsection (c) of section 357 (relating to assump-
tion of liability) is amended by adding at the end thereof the following
new paragraph:
"(3) CERTAIN LiABiuTiES EXCLUDED.—
"(A) I N GENERAL.—If—
"(i) the taxpayer's taxable income is computed under
the cash receipts and disbursements method of account-
ing, and
"(ii) such taxpayer transfers, in an exchange to which
26 use 351. section 351 applies, a liability which is either—
"(I) an account payable payment of which would
give rise to a deduction, or
"(II) an amount payable which is described in
26 use 736. section 736(a),
then, for purposes of paragraph (1), the amount of such
liability shall be excluded in determining the amount of
liabilities assumed or to which the property transferred is
subject.
"(B) EXCEPTION.—Subparagraph (A) shall not apply to any
liability to the extent that the incurrence of the liability
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2855
n resulted in the creation of, or an increase in, the basis of any
property."
(b) BASIS OF DISTRIBUTEES.—Subsection (d) of section 358 (relating to 26 USC 358.
basis to distributees) is amended to read as follows:
"(d) ASSUMPTION OF LIABILITY.—
"(1) IN GENERAL.—Where, as part of the consideration to the
taxpayer, another party to the exchange assumed a liability of
the taxpayer or acquired from the taxpayer property subject to a
liability, such assumption or acquisition (in the amount of the
liability) shall, for purposes of this section, be treated as money
received by the taxpayer on the exchange. -
"(2) EXCEPTION.—Paragraph (1) shall not apply to the amount
' of any liability excluded under section 357(c)(3)." 26 USC 357.
(c) EFFECTIVE DATE.—The amendments made by subsections (a) and 26 USC 357
(b) shall apply to transfers occurring on or after the date of the ^°^^-
enactment of this Act.
SEC. 366. MEDICAL EXPENSE REIMBURSEMENT PLANS.
(a) GENERAL RULE.—Section 105 (relating to accident and health 26 USC 105.
plans) is amended by adding at the end thereof the following:
"(h) AMOUNT PAID TO HIGHLY COMPENSATED INDIVIDUALS UNDER A
DISCRIMINATORY SELF-INSURED MEDICAL EXPENSE REIMBURSEMENT
PLAN.—
"(1) I N GENERAL.—In the case of amounts paid to a highly
compensated individual under a self-insured medical reimburse-
ment plan which does not satisfy the requirements of paragraph
(2) for a plan year, subsection (b) shall not apply to such amounts
to the extent they constitute an excess reimbursement of such
highly compensated individual.
"(2) PROHIBITION OF DISCRIMINATION.—A self-insured medical
reimbursement plan satisfies the requirements of this paragraph
only if—
"(A) the plan does not discriminate in favor of highly
compensated individuals as to eligibility to participate; and
"(B) the benefits provided under the plan do not discrimi-
nate in favor of participants who are highly compensated
individuals.
"(3) NONDISCRIMINATORY ELIGIBILITY CLASSIFICATIONS.—
"(A) I N GENERAL.—A self-insured medical reimbursement
plan does not satisfy the requirements of subparagraph (A)
of paragraph (2) unless such plan benefits—
"(i) 70 percent or more of all employees, or 80 percent
or more of all the employees who are eligible to benefit
under the plan if 70 percent or more of all employees are
eligible to benefit under the plan; or
"(ii) such employees as qualify under a classification
set up by the employer and found by the Secretary not to
be discriminatory in favor of highly compensated
participants.
"(B) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of
subparagraph (A), there may be excluded from considera-
tion—
"(i) employees who have not completed 3 years of
service;
"(ii) employees who have not attained age 25;
"(iii) part-time or seasonal employees;
"(iv) employees not included in the plan who are
included in a unit of employees covered by an agreement
92 STAT. 2856 PUBLIC LAW 95-600—NOV. 6, 1978
between employee representatives and one or more
employers which the Secretary finds to be a collective
bargaining agreement, if accident and health benefits
were the subject of good faith bargaining between such
employee representatives and such employer or employ-
ers; and
"(v) employees who are nonresident aliens and who
receive no earned income (within the meaning of section
26 use 911. 911(b)) from the employer which constitutes income
from sources within the United States (within the mean-
26 use 861. ing of section 861(a)(3)).
"(4) NONDISCRIMINATORY BENEFITS.—A self-insured medical
reimbursement plan does not meet the requirements of subpara-
graph (B) of paragraph (2) unless all benefits provided for
participants who are highly compensated individuals are pro-
vided for all other participants.
"(5) HIGHLY COMPENSATED INDIVIDUAL DEFINED.—For purposes
of this subsection, the term 'highly compensated individual'
means an individual who is—
"(A) one of the 5 highest paid officers,
"(B) a shareholder who owns (with the application of
26 use 318. section 318) more than 10 percent in value of the stock of the
employer, or
"(C) among the highest paid 25 percent of all employees
(other than employees described in paragraph (3)(B) who are
not participants).
"(6) SELF-INSURED MEDICAL REIMBURSEMENT PLAN.—The term
'self-insured medical reimbursement plan' means a plan of an
employer to reimburse employees for expenses referred to in
subsection (b) for which reimbursement is not provided under a
policy of accident and health insurance.
"(7) EXCESS REIMBURSEMENT OF HIGHLY COMPENSATED INDIVID-
UAL.—For purposes of this section, the excess reimbursement of a
highly compensated individual which is attributable to a self-
insured medical reimbursement plan is—
"(A) in the case of a benefit available to a highly compen-
sated individual but not to a broad cross-section of em-
ployees, the amount reimbursed under the plan to the
employee with respect to such benefit, and
"(B) in the case of benefits (other than benefits described
in subparagraph (A) paid to a highly compensated individual
by a plan which fails to satisfy the requirements of para-
graph (2), the total amount reimbursed to the highly com-
pensated individual for the plan year multiplied by a
fraction—
"(i) the numerator of which is the total amount
reimbursed to all participants who are highly compen-
sated individuals under the plan for the plan year, and
"(ii) the denominator of which is the total amount
reimbursed to all employees under the plan for such
plan year.
In determining the fraction under subparagraph (B), there shall
not be taken into account any reimbursement which is attributa-
ble to a benefit described in subparagraph (A).
"(8) CERTAIN CONTROLLED GROUPS.—All employees who are
treated as employed by a single employer under subsection (b) or
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2857
(c) of section 414 shall be treated as employed by a single 26 USC 414.
employer for purposes of this section.
"(9) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the provisions of this
section.
"(10) TIME OF INCLUSION.—Any amount paid for a plan year
that is included in income by reason of this subsection shall be
treated as received or accrued in the taxable year of the partici-
pant in which the plan year ends."
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 105
apply to taxable years beginning after December 31,1979. "°*^-
SEC. 367. THREE-YEAR EXTENSION OF PROVISION FOR 60-MONTH DE-
PRECIATION OF EXPENDITURES TO REHABILITATE LOW-
INCOME RENTAL HOUSING.
Subsection (k) of section 167 (relating to depreciation of expendi- 26 USC 167.
tures to rehabilitate low-income rental housing) is amended by
striking out "January 1,1979" each place it appears and inserting in
lieu thereof "January 1,1982".
SEC. 368. DELAY IN APPLICATION OF NEW NET OPERATING LOSS RULES.
(a) IN GENERAL.—Except as provided in subsection (b), paragraphs
(2) and (3) of section 806(g) of the Tax Reform Act of 1976 (relating to 26 USC 382
effective dates for the amendments to sections 382 and 383 of the "o*^-
Code) are amended by striking out "1978" each place it appears and ooo^^^ ^^^'
inserting in lieu thereof "1980". '*"'^-
(b) ELECTION OF PRIOR LAW.—
(1) A taxpayer may elect not to have the amendment made by
subsection (a) apply with respect to any acquisition or reorganiza-
tion occurring before the end of the taxpayer's first taxable year
beginning after June 30, 1978, where such acquisition or reorga-
nization occurs pursuant to a written binding contract or option
to acquire stock or assets which was entered into before Septem-
ber 27,1978.
(2) An election under this subsection shall be filed with a
taxpayer's timely filed return for the first taxable year in which
a reorganization or acquisition described in paragraph (1) occurs,
or, if later, within 90 days after the date of enactment of this Act.
Such election shall apply to all acquisitions and reorganizations
to which, but for such election, subsection (a) would apply.
SEC. 369. USE OF CERTAIN EXPIRED NET OPERATING LOSS CARRY-
OVERS.
(a) IN GENERAL.—Clause (iv) of section 374(e)(1)(A) (relating to use 26 USC 374.
of expired net operating loss carryovers to offset income arising from
certain railroad reorganization proceedings) is amended to read as
follows:
"(iv) a redemption of a certificate of value of the
United States Railway Association issued under section
306 of such Act to such corporation (or issued to another 26 USC 306.
member of the same affiliated group (within the mean-
ing of section 1504) as such corporation for their taxable 26 USC 1504.
years which included March 31,1967),".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 374
apply to taxable years ending after March 31,1976. note.
39-194 O - 8 0 - p t . 3 15 : QU
92 STAT. 2858 PUBLIC LAW 95-600—NOV. 6, 1978
SEC. 370. INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED
AS INCOME FROM SOURCES WITHIN THE UNITED STATES.
26 use 861. (a) GENERAL RULE.—Section 861 (relating to income from sources
within the United States) is amended by adding at the end thereof the
following new subsection:
"(f) INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED AS
INCOME FROM SOURCES WITHIN THE UNITED STATES.
"(1) GENERAL RULE.—For purposes of subsection (a) and section
26 use 826. 826(a), if—
"(A) a taxpayer leases railroad rolling stock which is
26 use 38. section 38 property (or would be section 38 property but for
26 use 48. section 48(a)(5)) to a domestic common carrier by railroad or
a corporation which is controlled, directly or indirectly, by
one or more such common carriers, and
"(B) the use under such lease is expected to be use within
the United States,
all amounts includible in gross income by the taxpayer with
respect to such railroad rolling stock (including gain from sale or
other disposition of such railroad rolling stock) shall be treated as
income from sources within the United States. The requirements
of subparagraph (B) of the preceding sentence shall be treated as
satisfied if the only expected use outside the United States is use
by a person (whether or not a United States person) in Canada or
Mexico on a temporary basis which is not expected to exceed a
total of 90 days in any taxable year.
"(2) PARAGRAPH (i) NOT TO APPLY WHERE LESSOR IS A MEMBER OF
CONTROLLED GROUP WHICH INCLUDES A RAILROAD.—Paragraph (1)
shall not apply to a lease between two members of the same
26 use 1563. controlled group of corporations (as defined in section 1563) if
any member of such group is a domestic common carrier by
railroad or a switching or terminal company referred to in
26 use 184. subparagraph (B) of section 184(d)(1).
"(3) DENIAL OF FOREIGN TAX CREDIT.—No credit shall be al-
26 use 901. lowed under section 901 for any payments to foreign countries
with respect to any amount received by the taxpayer with respect
to railroad rolling stock which is subject to paragraph (1).".
26 use 861 (b) EFFECTIVE DATES.—
"*'*^- (1) IN GENERAL.—The amendment made by subsection (a) shall
apply to all railroad rolling stock placed in service with respect to
the taxpayer after the date of the enactment of this Act.
Supra. (2) ELECTION TO EXTEND SECTION 861(f) TO RAILROAD ROLLING
STOCK PLACED IN SERVICE BEFORE DATE OF ENACTMENT.
(A) I N GENERAL.—At the election of the taxpayer, the
amendment made by subsection (a) shall also apply, for
taxable years beginning after the date of the enactment of
this Act, to all railroad rolling stock placed in service with
respect to the taxpayer on or before such date of enactment.
Such an election may not be revoked except with the consent
of the Secretary of the Treasury or his delegate.
(B) MANNER AND TIME OF ELECTION AND REVOCATION.—An
election under subparagraph (A), and any revocation of such
an election, shall be made in such manner and at such time
as the Secretary of the Treasury or his delegate may by
regulations prescribe.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2859
SEC. 371. NET OPERATING LOSSES ATTRIBUTABLE TO PRODUCT LIABIL-
ITY LOSSES.
(a) 10-YEAR CARRYBACK.—
(1) I N GENERAL.—Paragraph (1) of section 172(b) (relating to 26 USC 172.
years to which loss may be carried) is amended by adding at the
end thereof the following new subparagraph:
"(H) PRODUCT LIABILITY LOSSES.—In the case of a taxpayer
which has a product liability loss (as defined in subsection (i))
for a taxable year beginning after September 30, 1979
(referred to in this subparagraph as the 'loss year'), the
product liability loss shall be a net operating loss carryback
to each of the 10 taxable years preceding the loss year."
(2) CONFORMING AMENDMENT.—Clause (i) of section 172(b)(1)(A)
is amended by striking out "and (G)" and inserting in lieu thereof
"(G), and (H)".
(b) RULES RELATING TO PRODUCT LIABILITY LOSSES.—Section 172 is
amended by redesignating subsection (i) as subsection (j) and by
inserting after subsection (h) the following new subsection:
"(i) RULES RELATING TO PRODUCT LIABIUTY LOSSES.—For purposes
of subsection (b)—
"(1) PRODUCT UABIUTY LOSS.—The term 'product liability loss'
means, for any taxable year, the lesser of—
"(A) the net operating loss for such year reduced by any
portion thereof which is attributable to a foreign expropri-
ation loss, or
"(B) the sum of the amounts allowable as deductions under
sections 162 and 165 which are attributable to— 26 USC 162,
"(i) product liability, or 165.
"(ii) expenses incurred in the investigation or settle-
i' ment of, or opposition to, claims against the taxpayer on
t account of product liability.
"(2) PRODUCT UABILITY.—The term 'product liability' means—
"(A) liability of the taxpayer for damages on account of
physical injury or emotional harm to individuals, or damage
to or loss of the use of property, on account of any defect in
any product which is manufactured, leased, or sold by the
taxpayer, but only if
"(B) such injury, harm, or damage arises after the tax-
payer has completed or terminated operations with respect
to, and has relinquished possession of, such product.
"(3) ELECTION.—Any taxpayer entitled to a 10-year carryback
,. under subsection Ot))(l)(H) from any loss year may elect to have
the carryback period with respect to such loss year determined
without regard to subsection (b)(1)(H). Such election shall be
made in such manner as may be prescribed by the Secretary and
shall be made by the due date (including extensions of time) for
filing the taxpayer's return for the taxable year of the net
operating loss. Such election, once made for any taxable year,
shall be irrevocable for that taxable year."
(c) APPLICATION OF ACCUMULATED EARNINGS TAX TO PRODUCT
LIABILITY LOSS RESERVES.—Subsection (h) of section 537 (relating to 26 USC 537.
special rules) is amended by redesignating paragraph (4) as para-
graph (5) and by inserting after paragraph (3) the following new
paragraph:
"(4) PRODUCT LIABIIJTY LOSS RESERVES.—The accumulation of
reasonable amounts for the payment of reasonably anticipated
product liability losses (as defined in section 172(i)), as deter- Supra.
92 STAT. 2860 PUBLIC LAW 95-600—NOV. 6, 1978
mined under regulations prescribed by the Secretary, shall be
treated as accumulated for the reasonably anticipated needs of
the business."
26 use 172 (d) EFFECTIVE DATE.—The amendments made by this section shall
note. apply with respect to taxable years beginning after September 30,
1979.
SEC. 372. EXCLUSION FROM GROSS INCOME WITH RESPECT TO MAGA-
ZINES, PAPERBACKS, AND RECORDS RETURNED AFTER THE
CLOSE OF THE TAXABLE YEAR.
(a) IN GENERAL.—Subpart B of part II of subchapter E of chapter 1
(relating to taxable year for which items of gross income included) is
amended by adding at the end thereof the following new section:
26 use 458. "SEC. 458. MAGAZINES, PAPERBACKS, AND RECORDS RETURNED AFTER
THE CLOSE OF THE TAXABLE YEAR.
"(a) EXCLUSION FROM GROSS INCOME.—A taxpayer who is on an
accrual method of accounting may elect not to include in the gross
income for the taxable year the income attributable to the qualified
sale of any magazine, paperback, or record which is returned to the
taxpayer before the close of the merchandise return period.
"(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
"(1) MAGAZINE.—The term 'magazine' includes any other
periodical.
"(2) PAPERBACK.—The term 'paperback' means any book which
has a flexible outer cover and the pages of which are affixed
directly to such outer cover. Such term does not include a
magazine.
"(3) RECORD.—The term 'record' means a disc, tape, or similar
object on which musical, spoken, or other sounds are recorded.
"(4) SEPARATE APPUCATION WITH RESPECT TO MAGAZINES, PAPER-
BACKS, AND RECORDS.—If a taxpayer makes qualified sales of
more than one category of merchandise in connection with the
same trade or business, this section shall be applied as if the
qualified sales of each such category were made in connection
with a separate trade or business. For purposes of the preceding
sentence, magazines, paperbacks, and records shall each be
treated as a separate category of merchandise.
"(5) QuAUFiED SALE.—A Sale of a magazine, paperback, or
record is a qualified sale if^
"(A) at the time of sale, the taxpayer has a legal obligation
to adjust the sales price of such magazine, paperback, or
record if it is not resold, and
"(B) the sales price of such magazine, paperback, or record
is adjusted by the taxpayer because of a failure to resell it.
"(6) AMOUNT EXCLUDED.—The amount excluded under this
section with respect to any qualified sale shall be the lesser of—
"(A) the amount covered by the legal obligation described
in paragraph (5XA), or
"(B) the amount of the adjustment agreed to by the
taxpayer before the close of the merchandise return period.
"(7) MERCHANDISE RETURN PERIOD.—
"(A) Except as provided in subparagraph (B), the term
'merchandise return period' means, with respect to any
taxable year—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2861
"(i) in the case of magazines, the period of 2 months
and 15 days first occurring after the close of taxable
year, or
"(ii) in the case of paperbacks and records, the period
of 4 months and 15 days first occurring after the close of
the taxable year.
"(B) The taxpayer may select a shorter period than the
applicable period set forth in subparagraph (A).
"(C) Any change in the merchandise return period shall be
treated as a change in the method of accounting.
"(8) CERTAIN EVIDENCE MAY BE SUBSTITUTED FOR PHYSICAL
RETURN OF MERCHANDISE.—Under regulations prescribed by the
Secretary, the taxpayer may substitute, for the physical return of
magazines, paperbacks, or records required by subsection (a),
certification or other evidence that the magazine, paperback, or
record has not been resold and will not be resold if such
evidence—
"(A) is in the possession of the taxpayer at the close of the
merchandise return period, and
"(B) is satisfactory to the Secretary.
"(9) REPURCHASED BY THE TAXPAYER NOT TREATED AS RESALE.—
A repurchase by the taxpayer shall be treated as an adjustment
of the sales price rather than as a resale.
"(c) QUALIFIED SALES TO WHICH SECTION APPLIES.—
"(1) ELECTION OF BENEFITS.—This section shall apply to quali-
fied sales of magazines, paperbacks, or records, as the case may
be, if and only if the taxpayer makes an election under this
section with respect to the trade or business in connection with
which such sales are made. An election under this section may be
made without the consent of the Secretary. The election shall be
made in such manner as the Secretary may by regulations
prescribed and shall be made for any taxable year not later than
the time prescribed by law for filing the return for such taxable
year (including extensions thereof).
"(2) SCOPE OP ELECTION.—An election made under this section
shall apply to all qualified sales of magazines, paperbacks, or
records, as the case may be, made in connection with the trade or
business with respect to which the taxpayer has made the
election.
"(3) PERIOD TO WHICH ELECTION APPLIES.—An election under
this section shall be effective for the taxable year for which it is
made and for all subsequent taxable years, unless the taxpayer
secures the consent of the Secretary to the revocation of such
election.
"(4) TREATMENT AS METHOD OF ACCOUNTING.—Except to the
extent inconsistent with the provisions of this section, for pur-
poses of this subtitle, the computation of taxable income under
an election made under this section shall be treated as a method
of accounting.
"(d) 5-YEAR SPREAD OP TRANSITIONAL ADJUSTMENTS FOR MAGA-
ZINES.—In applying section 481(c) with respect to any election under 26 use 481.
this section which applies to magazines, the period for taking into
account any decrease in taxable income resulting from the applica-
tion of section 481(a)(2) shall be the taxable year for which the
election is made and the 4 succeeding taxable years.
"(e) SUSPENSE ACCOUNT FOR PAPERBACKS AND RECORDS.—
92 STAT. 2862 PUBLIC LAW 95-600—NOV. 6, 1978
"(1) IN GENERAL.—In the case of any election under this section
which applies to paperbacks or records, in lieu of applying
26 use 481. section 481, the taxpayer shall establish a suspense account for
the trade or business for the taxable year for which the election is
made.
"(2) INITIAL OPENING BALANCE.—The opening balance of the
account described in paragraph (1) for the first taxable year to
which the election applies shall be the largest dollar amount of
returned merchandise which would have been taken into ac-
count under this section for any of the 3 immediately preceding
taxable years if this section had applied to such preceding 3
taxable years. This paragraph and paragraph (3) shall be applied
by taking into account only amounts attributable to the trade or
business for which such account is established.
"(3) ADJUSTMENTS IN SUSPENSE ACCOUNT.—At the close of each
taxable year the suspense account shall be—
"(A) reduced the excess (if any) of—
"(i) the opening balance of the suspense account for
the taxable year, over
"(ii) the amount excluded from gross income for the
' taxable year under subsection (a), or
"(B) increased (but not in excess of the initial opening
balance) by the excess (if any) of—
"(i) the amount excluded from gross income for the
taxable year under subsection (a), over
"(ii) the opening balance of the account for the taxable
year.
"(4) GROSS INCOME ADJUSTMENTS.—
"(A) REDUCTIONS EXCLUDED FROM GROSS INCOME.—In the
case of any reduction under paragraph (3)(A) in the account
for the taxable year, an amount equal to such reduction shall
.^ be excluded from gross income for such taxable year.
"(B) INCREASES ADDED TO GROSS INCOME.—In the case of
any increase under paragraph (3)(B) in the account for the
taxable year, an amount equal to such increase shall be
included in gross income for such taxable year.
If the initial opening balance exceeds the dollar amount of
returned merchandise which would have been taken into ac-
count under subsection (a) for the taxable year preceding the first
taxable year for which the election is effective if this section had
applied to such preceding taxable year, then an amount equal to
the amount of such excess shall be included in gross income for
such first taxable year.
"(5) SUBCHAPTER C TRANSACTIONS.—The application of this
subsection with respect to a taxpayer which is a party to any
transaction with respect to which there is nonrecognition of gain
or loss to any party to the transaction by reason of subchapter C
shall be determined under regulations prescribed by the
Secretary."
(b) CLERICAL AMENDMENTS.—The table of sections for such subpart
B is amended by adding at the end thereof the following:
"Sec. 458. Magazines, paperbacks, and records returned after the close of
the taxable year."
26 use 458 (c) EFFECTIVE DATE.—The amendments made by this section shall
°°*®- apply to taxable years beginning after September 30,1979.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2863
SEC. 373. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF
TAXABLE YEAR.
(a) GENERAL RULE.—Subpart C of part II of subchapter E of chapter
1 of the Internal Revenue Code of 1954 (relating to taxable year for
which deductions taken) is amended by adding at the end thereof the
following new section:
"SEC. 466. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF 26 USC 466.
TAXABLE YEAR.
"(a) ALLOWANCE OF DEDUCTION.—At the election of a taxpayer
whose taxable income is computed under an accrual method of
accounting, the deduction allowable under this chapter for the
redemption costs of qualified discount coupons shall be an amount ,
equal to the sum of—
"(1) such costs incurred by the taxpayer with respect to
coupons—
"(A) which were outstanding at the close of the taxable
year, and
"(B) which were received by the taxpayer before the close
of the redemption period for the taxable year, plus
"(2) such costs (other than costs properly t£iken into account
under paragraph (1) for a prior taxable year) incurred by the
taxpayer during the taxable year.
"(b) QUALIFIED DISCOUNT COUPONS.—For purposes of this section—
"(1) IN GENERAL.—The term 'qualified discount coupon' means
a discount coupon which—
"(A) was issued by the taxpayer,
"(B) is redeemable by the taxpayer, and
"(C) allows a discount on the purchase price of merchan-
dise or other tangible personal property.
"(2) METHOD OF ISSUANCE NOT TAKEN INTO ACCOUNT.—The
determination of whether or not a discount coupon is a qualified
discount coupon sh£dl be made without regard to whether the
coupon was issued through a newspaper, magazine, or other
publication, by mail, on the pack or in the pack of merchandise,
or otherwise.
"(3) DISCOUNT ON ITEM CANNOT EXCEED $5.—A coupon shall not
be a qualified discount coupon if—
"(A) the face amount of such coupon is more than $5, or
"(B) such coupon may be used with other coupons to bring
about a price discount of more than $5 with respect to any
item.
"(4) THERE MUST BE REDEMPTION CHAIN.—A coupon shall not be
a qualified discount coupon if the issuer directly redeems such
coupon from the person using the coupon to receive a price
discount. For purposes of the preceding sentence, corporations
which are members of the same controlled group of corporations
(within the meaning of section 1563(a) as the issuer shall be 26 USC 1563.
treated as the issuer.
"(5) REDEEMABLE BY TAXPAYER.—A coupon is redeemable by
the taxpayer if the terms of the coupon require the taxpayer to
redeem the coupon when presented for redemption in accordance
with its terms.
"(c) REDEMPTION COSTS; REDEMPTION PERIOD.—For purposes of this
section—
"(1) REDEMPTION COSTS.—The term 'redemption cost' means,
with respect to any coupon—
92 STAT. 2864 PUBLIC LAW 95-600—NOV. 6, 1978
» «(A) ^jjg lesser of—
"(i) the amount of the discount provided by the terms
of the coupon, or
"(ii) the amount incurred by the taxpayer for paying
such discount, plus
"(B) the amount incurred by the taxpayer for a payment to
, , the retailer (or other person redeeming the coupon from the
person receiving the price discount), but only if the amount
so payable is stated on the coupon.
"(2) REDEMPTION PERIOD.—
"(A) IN GENERAL.—Except as provided in subparagraph
(B), the redemption period for any taxable year is the 6-
month period immediately following the close of the taxable
year.
"(B) TAXPAYER MAY SELECT SHORTER PERIOD.—The tax-
payer may select a redemption period which is shorter than
6 months.
"(C) CHANGE IN REDEMPTION PERIOD.—Any change in the
redemption period shall be treated as a change in the
method of accounting.
"(d) QUALIFIED DISCOUNT COUPONS TO WHICH SECTION APPLIES.—
"(1) ELECTION OF BENEFITS.—This section shall apply to quali-
fied discount coupons if and only if the taxpayer makes an
election under this section with respect to the trade or business
in connection with which such coupons are issued. An election
under this section may be made without the consent of the
Secretary. The election shall be made in such manner as the
Secretary may by regulations prescribe and shall be made for
any taxable year not later than the time prescribed by law for
filing the return for such taxable year (including extensions
thereof).
"(2) SCOPE OF ELECTION.—An election made under this section
shall apply to all qualified discount coupons issued in connection
with the trade or business with respect to which the taxpayer has
made the election.
"(3) PERIOD TO WHICH ELECTION APPLIES.—An election under
this section shall apply to the taxable year for which it is made
and for all subsequent taxable years, unless the taxpayer secures
the consent of the Secretary to the revocation of such election.
"(4) TREATMENT AS METHOD OF ACCOUNTING.—Except to the
extent inconsistent with the provisions of this section, for pur-
poses of this subtitle, the computation of taxable income under
an election made under this section shall be treated as a method
of accounting.
"(e) SUSPENSE ACCOUNT.—
"(1) IN GENERAL.—In the case of any election under this section
which (but for this subsection) would result in a net decrease in
26 use 481. taxable income under section 481(a)(2), in lieu of applying section
481, the taxpayer shall establish a suspense account for the trade
or business for the taxable year for which the election is made.
"(2) INITIAL OPENING BALANCE.—The initial opening balance of
the account described in paragraph (1) for the first taxable year
to which the election applies shall be the amount by which—
"(A) the largest dollar amount which would have been
taken into account under subsection (a)(1) for any of the 3
immediately preceding taxable years if this section had
applied to such 3 preceding taxable years, exceeds
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2865
"(B) the sum of the increases in income (and the decreases
in deductions) which (but for this subsection) would result
under section 481(a)(2) for such first taxable years. 26 use 481.
This subsection shall be applied by taking into account only
amounts attributal to the trade or business for which such
account is established.
"(3) ADJUSTMENTS IN SUSPENSE ACCOUNT.—At the close of each
taxable year, the suspense account shedl be—
"(A) reduced by the excess (if any) of—
"(i) the opening balance of the suspense account for
the taxable year, over
"(ii) the amount deducted for the taxable year under
subsection (a)(1), or
"(B) increased (but not in excess of the initial opening
bsdance) by the excess (if any) of—
"(i) the amount deducted for the taxable year under
subsection (a)(1), over
"(ii) the opening balance of the suspense account for
the taxable year.
"(4) INCOME ADJUSTMENTS.—
"(A) REDUCTIONS ALLOWED AS DEDUCTION.—In the case of
any reduction under paragraph (3)(A) in the account for the
taxable year, an amount equal to such reduction shall be
allowed as a deduction for such taxable year.
"(B) INCREASES ADDED TO GROSS INCOME.—In the case of
any increase under paragraph (3)(B) in the account for the
taxable year, an amount equal to such increase shall be
included in gross income for such taxable year.
If the amount described in paragraph (2)(A) exceeds the dollar
amount which would have been taken into account under subsec-
tion (a)(1) for the taxable year preceding the first taxable year for
which the election is effective if this section had applied to such
preceding taxable year, then an amount equal to the amount of
such excess shall be included in gross income for such first
taxable year.
"(5) SUBCHAPTER C TRANSACTIONS.—The application of this
subsection with respect to a taxpayer which is a party to any
transaction with respect to which there is nonrecognition of gain
or loss to any party to the transaction by reason of subchapter C
shall be determined under regulations prescribed by the
Secretary.
"(f) 10-YEAR SPREAD OF ANY NET INCREASE IN TAXABLE INCOME
UNDER SECTION 481(a)(2).—In the case of any election under this
section which results in a net increase in taxable income under
section 481(a)(2), under regulations prescribed by the Secretary, such
net increase shall (except as otherwise provided in such regulations)
be taken into account by the tsixpayer in computing taxable income
in each of the 10 taxable years beginning with the year for which the
election is made."
(b) CLERICAL AMENDMENT.—The table of sections for such subpart C
is amended by adding at the end thereof the following new item:
"Sec. 466. Qualified discount coupons redeemed after close of taxable year."
(C) EFFECTIVE D A T E . — 26 u s e 466
(1) IN GENERAL.—The amendments made by subsections (a) and "ote.
(b) shall apply to taxable years ending after December 31, 1978.
(2) APPUCATION TO CERTAIN PRIOR TAXABLE YEARS.—
(A) I N GENERAL.—If—
92 STAT. 2866 PUBLIC LAW 95-600—NOV. 6, 1978
(i) the taxpayer makes an election under section 466 of
Ante, p. 2863. the Internal Revenue Code of 1954 for his first taxable
year ending after December 31,1978, and
(ii) for a continuous period of 1 or more taxable years
each of which ends on or before December 31,1978, the
taxpayer used the method of accounting with respect to
«'r \ any type of discount coupons which was reasonably
similar to the method of accounting provided by section
26 CFR 1.451-4. 1.451-4 of the Income Tax Regulations,
then the taxpayer may make an election under this para-
graph to have the method of accounting which he used for
1 such continuous period treated as a valid method of account-
ing with respect to each such type of discount coupons for
such period for purposes of the Internal Revenue Code of
26 use 1. 1954. A taxpayer may make an election under this para-
graph with respect to only one such continuous period.
(B) CERTAIN AMOUNTS TO WHICH METHOD OF ACCOUNTING
APPLIES.—An accounting method which the taxpayer used
for the period described in subparagraph (A) may include—
(i) costs of the type permitted by section 1.451-4 of the
Income Tax Regulations to be included in the estimated
average cost of redeeming coupons, plus
(ii) any amount designated or referred to on the
coupon payable by the taxpayer to the person who
allowed the discount on a sale by such person to the user
of the coupon.
(C) SUSPENSE ACCOUNT NOT REQUIRED IN CERTAIN CASES.—A
taxpayer whose election under this paragraph applies to all
types of discount coupons which he issued during the con-
tinuous period referred to in subparagraph (A)(ii) shall not
be required to establish a suspense account under section
466(e) of the Internal Revenue Code of 1954.
(D) RULES RELATING TO ELECTION UNDER THIS SUBSECTION.—
An election under this paragraph may be made only before
the expiration of the period for making an election under
section 466 of the Internal Revenue Code of 1954 for the
taxpayer's first taxable year ending after December 31,1978.
An election under this paragraph shall be made in such a
manner and form as the Secretary of the Treasury or his
delegate may by regulations prescribe. For purposes of the
26 use 1. Internal Revenue Code of 1954, such an election shall be
' treated as a method of accounting, except that the approval
of the Secretary of the Treasury or his delegate to the
making of the election may not be required.
TITLE IV—CAPITAL GAINS; MINIMUM
TAX; MAXIMUM TAX
Subtitle A—Capital Gains
SEC. 401. REPEAL OF ALTERNATIVE TAX ON CAPITAL GAINS OF INDIVID-
UALS.
26 use 1201. (a) GENERAL RULE.—Section 1201 (relating to alternative tax) is
amended—
(1) by striking out subsections (b) and (c), ._.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2867
(2) by redesignating subsection (d) as subsection (b), and
(3) by amending the section heading to read as follows:
"SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.".
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 3(b) is amended by striking out 26 USC 3.
subparagraph (B) and by redesignating subparagraphs (C) and
(D) as subparagraphs (B) and (C), respectively.
(2) Subsection (a) of section 5 is amended by striking out 26 USC 5.
paragraph (3) and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(3) Paragraph (1) of section 871(b) is amended by striking out 26 USC 871.
"section 1, 402(e)(1), or 1201(b)" and inserting in lieu thereof
"section l o r 402(e)(1)".
(4) Paragraph (1) of section 911(d) is amended— 26 USC 911.
(A) by striking out "section 1 or section 1201" each place it
appears and inserting in lieu thereof "section 1", and
(B) by striking out "(whichever is applicable)" each place it
appears.
(5) Subsection (b) of section 1304 is amended— 26 USC 1304.
(A) by adding "and" at the end of paragraph (2),
(B) by striking out paragraph (3), and
(C) by redesignating paragraph (4) as paragraph (3).
(6) The table of sections for part I of subchapter P of chapter 1
is amended by striking out the item relating to section 1201 and
inserting in lieu thereof the following:
"Sec. 1201. Alternative tax for corporations."
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1201
apply to taxable years beginning after December 31,1978. note.
SEC. 402. INCREASED CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.
(a) GENERAL RULE.—Section 1202 (relating to deduction for capital 26 USC 1202.
gains) is amended to read as follows:
"SEC. 1202. DEDUCTION FOR CAPITAL GAINS.
"(a) IN GENERAL.—If for any taxable year a taxpayer other than a
corporation has a net capital gain, 60 percent of the amount of the net
capital gain shall be a deduction from gross income.
"(b) ESTATES AND TRUSTS.—In the case of an estate or trust, the
deduction shall be computed by excluding the portion (if any) of the
gains for the taxable year from sales or exchanges of capital assets
which, under sections 652 and 662 (relating to inclusions of amounts 26 USC 652,
in gross income of beneficiaries of trusts), is includible by the income 662.
beneficiaries as gain derived from the sale or exchange of capital
assets.
"(c) TAXABLE YEARS WHICH INCLUDE NOVEMBER 1,1978.—If for any
taxable year beginning before November 1, 1978, and ending after
October 31, 1978, a taxpayer other than a corporation has a net
capital gain, the deduction under subsection (a) shall be the sum of—
"(1) 60 percent of the lesser of—
"(A) the net capital gain for the taxable year, or
"(B) the net capital gain taking into account only sales and
exchanges after October 31,1978, plus
"(2) 50 percent of the excess of—
"(A) the net capital gain for the taxable year, over
"(B) the amount of net capital gain taken into account
under paragraph (1)."
(b) TECHNICAL AMENDMENTS.—
92 STAT. 2868 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 57. (1) Subparagraph (A) of section 57(a)(9) (relating to treatment
of capital gains for purposes of the minimum tax) is amended to
read as follows:
"(A) INDIVIDUALS.—In the case of a taxpayer other than a
corporation, an amount equal to the net capital gain deduc-
Ante, p. 2867. tion for the t£ixable year determined under section 1202."
26 use 170. (2) Subparagraph (B) of section 170(e)(1) (relating to charitable
deduction for contributions of capital gain property) is amended
by striking out "50 percent" and inserting in lieu thereof "40
percent",
(c) EFPECTIVE DATES;-^
26 use 1202 (1) The amendments made by subsections (a) and (b)(1) shall
note. apply to taxable years ending after October 31,1978.
26 use 170 (2) The amendment made by subsection (b)(2) shall apply to
note. contributions made after October 31,1978.
SEC. 403. REDUCTION OF ALTERNATIVE CAPITAL GAINS TAX FOR COR-
PORATIONS.
26 use 1201. (a) GENERAL RULE.—Paragraph (2) of section 1201(a) (relating to
alternative tax for corporations) is amended bv striking out "30
percent" and inserting in lieu thereof "28 percent'.
(b) TRANSITIONAL RULE.—Section 1201 is amended by adding at the
end thereof the following new subsection:
"(c) TAXABLE YEARS WHICH INCLUDE JANUARY 1,1979.—If for any
taxable year beginning before January 1, 1979, and ending after
December 31, 1978, a corporation has a net capital gain, then
subsection (a) shall be applied by substituting for the language of
paragraph (2) the following:
"(2)(A) a tax of 28 percent of the lesser of—
' '(i) the net capital gain for the taxable year, or
. "(ii) the net capital gain taking into account only sales and
exchanges after December 31,1978, plus
"(B) a tax of 30 percent of the excess of—
"(i) the net capital gains for the taxable year, over
"(ii) the amount of net capital gain taken into account
under subparagraph (A)."
(c) CONFORMING AMENDMENTS.—
26 use 170. (1) Subparagraph (B) of section 170(e)(1) (relating to charitable
deduction for contributions of capital gain property) is amended
by striking out "62y2 percent" and inserting in lieu thereof
"2%6".
26 use 528. (2) Subparagraph (B) of section 528(b)(2) (relating to tax im-
posed on certain homeowners associations) is amended to read as
follows:
Supra. "(B) an amount determined as provided in section 1201(a)
on such gain."
26 use 857. (3) Clause (ii) of section 857(b)(3)(A) (relating to tax on real
estate investment trusts) is amended by striking out "a tax of 30
percent of" and inserting in lieu thereof "a tax determined at the
rate provided in section 1201(a) on".
26 use 904. (4) Subsection (b) of section 904 (relating to taxable income for
computing the limitation on foreign tax credits) is amended—
(A) by striking out "three-eighths" wherever it appears
and inserting in lieu thereof "the rate differential portion";
.>. and
(B) by striking the period at the end of subparagraph (D) of
paragraph (3), inserting in lieu thereof a comma, and insert-
PUBLIC LAW 9 5 - 6 0 0 — N O V . 6, 1978 9 2 STAT. 28()9
ing immediately thereafter t h e following new paragraph to
read as follows:
"(E) R A T E DIFFERENTIAL PORTION.—The ' r a t e differential
portion' of foreign source n e t capital gain, n e t capital gain,
or t h e excess of n e t capital gain from sources within t h e
United States over net capital gain, as the case may be, is t h e
same proportion of such a m o u n t a s t h e excess of t h e highest
rate of tax specified in section 11(b) over the alternative r a t e 26 u s e 11.
of tax under section 1201(a) bears to t h e highest rate of tax Ante, p. 2868
specified in section 11(b)."
(d) EFFECTIVE DATES.—
(1) The amendments made by subsections (a) and (b) shall apply 26 u s e 1201
to taxable years ending after December 31,1978. note.
(2) T h e a m e n d m e n t made by p a r a g r a p h (1) of subsection (c) 26 u s e 170
shall apply to gifts made after December 31,1978. note.
(3) T h e amendments made by paragraphs (2), (3), a n d (4) of 26 u s e 528
subsection (c) shall t a k e effect on t h e date of t h e enactment of note.
this Act.
SEC. 404. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55.
(a) GENERAL R U L E . — T h e section heading a n d subsections (a) a n d (b)
section 121 a r e amended to read as follows: 26 USe 121.
"SEC. 12L ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55.
"(a) GENERAL RULE.—At t h e election of t h e taxpayer, gross income
does not include gain from t h e sale or exchange of property if—
"(1) t h e taxpayer has attained t h e age of 55 before t h e date of
such sale or exchange, a n d
"(2) during t h e 5-year period ending on t h e date of t h e sale or
exchange, such property h a s been owned a n d used by t h e
taxpayer as his principal residence for periods aggregating 3
years or more.
"(b) LIMITATIONS.—
"(1) DOLLAR LIMITATION.—The a m o u n t of t h e gain excluded
from gross income under subsection (a) shall not exceed $100,000
($50,000 in t h e case of a separate r e t u r n by a married individual).
"(2) APPLICATION TO ONLY i SALE OR EXCHANGE.—Subsection (a)
shall not apply to a n y sale or exchange by t h e taxpayer if a n
election by t h e taxpayer or his spouse under subsection (a) with
respect to a n y other sale or exchange is in effect.
"(3) ADDITIONAL ELECTION I F PRIOR SALE WAS MADE ON OR
BEFORE JULY 26, 1978.—In t h e case of any sale or exchange after
J u l y 26, 1978, this section shall be applied by not taking into
account any election made with respect to a sale or exchange on
or before such date."
Ot)) TACKING OF HOLDING PERIOD I N CASE OF INVOLUNTARY CONVER-
SIONS.—Subsection (d) of section 121 (relating to special rules) is
amended by adding a t t h e end thereof t h e following new paragraph:
"(8) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVERSION.—If
t h e basis of t h e property sold or exchanged is determined (in
whole or in part) under subsection (b) of section 1033 (relating to 26 USC 1033.
basis of property acquired through involuntary conversion), t h e n
t h e holding a n d use by t h e taxpayer of t h e converted property
shall be treated as holding a n d use by t h e taxpayer of t h e
property sold or exchanged.'
(c) TECHNICAL AND CONFORMING A M E N D M E N T S . —
92 STAT. 2870 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 121. (1) Paragraph (2) of section 121(d) is amended by striking out
"8-year period" and inserting in lieu thereof "5-year period".
(2) Paragraph (5) of section 121(d) is amended—
(A) by striking out "8-year period" and inserting in lieu
thereof "5-year period", and
(B) by striking out "5 years" and inserting in lieu thereof
"3 years".
(3) The table of sections for part III of subchapter B of chapter 1
is amended by striking out the item relating to section 121 and
inserting in lieu thereof the following:
,,v I ,, "Sec. 121. One-time exclusion of gain from sale of principal residence by in-
dividual who has attained age 55."
26 use 1033. (4) Paragraph (3) of section 1033(g) (relating to cross references)
is amended to read as follows:
"(3) For one-time exclusion from gross income of gain from involun-
tary conversion of principal residence by individual who has attained age
55, see section 121."
26 use 1034. (5) Subsection (k) of section 1034 (relating to cross references) is
amended to read as follows:
"(k) CROSS REFERENCE.—
"For one-time exclusion from gross income of gain from sale of princi-
pal residence by individual who has attained age 55, see section 121."
26 use 1038. (6) Section 1038(e)(1)(A) is amended by striking out "relating to
gain from sale or exchange of residence of an individual who has
attained age 65" and inserting in lieu thereof "relating to one-
time exclusion of gain from sale of principal residence by
individual who has attained age 55".
26 use 1250. (7) Section 1250(d)(7)(B) is amended by striking out "relating to
gains from sale or exchange of residence of individual who has
attained the age of 65" and inserting in lieu thereof "relating to
one-time exclusion of gain from sale of principal residence by
individual who has attained age 55".
26 use 6012. (8) Section 6012(c) is amended by striking out "relating to sale
of residence by individual who has attained age 65" and inserting
in lieu thereof "relating to one-time exclusion of gain from sale of
principal residence by individual who has attained age 55".
26 use 121 (d) EFFECTIVE DATE.—
"°*^- (1) IN GENERAL.—The amendments made by this section shall
apply to sales or exchanges after July 26, 1978, in taxable years
ending after such date.
(2) TRANSITIONAL RULE,—In the case of a sale or exchange of a
residence before July 26,1981, a taxpayer who has attained age
65 on the date of such sale or exchange may elect to have section
121 of the Internal Revenue Code of 1954 applied by substituting
"8-year period" for "5-year period" and "5 years" for "3 years" in
subsections (a), (d)(2), and (d)(5) of such section.
SEC. 405. WAIVER OF CERTAIN 18-MONTH RULES OF SECTION 1034 WHEN
SALE OF RESIDENCE IS CONNECTED WITH COMMENCING
WORK AT NEW PLACE.
26 use 1034. (a) IN GENERAL.—Subsection (d) of section 1034 (relating to sale or
exchange of residence) is amended to read as follows:
"(d) LIMITATION.—
"(1) IN GENERAL.—Subsection (a) shall not apply with respect to
the sale of the taxpayer's residence if within 18 months before
the date of such sale the taxpayer sold at a gain other property
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2871
used by him as his principal residence, and any part of such gain
was not recognized by reason of subsection (a).
"(2) SUBSEQUENT SALE CONNECTED WITH COMMENCING WORK AT
NEW PLACE.—Paragraph (1) shall not apply with respect to the
sale of the taxpayer's residence if—
"(A) such sale was in connection with the commencement
of work by the taxpayer as an employee or as a self-employed
individual at a new principal place of work, and
"(B) if the residence so sold is treated as the former
residence for purposes of section 217 (relating to moving 26 USC 217.
expenses), the taxpayer would satisfy the conditions of
subsection (c) of section 217 (as modified by the other
subsections of such section)."
(b) RELATED TECHNICAL AMENDMENT.—Paragraph (4) of section
1034(c) is amended by adding at the end thereof the following new 26 USC 1034.
sentence: "If a principal residence is sold in a sale to which subsection
(d)(2) applies within 18 months after the sale of the old residence, for
purposes of applying the preceding sentence with respect to the old
residence, the principal residence so sold shall be treated as the last
residence used during such 18-month period."
(c) CLERICAL AMENDMENTS.—
(1) The section heading of section 1034 is amended to read as . |
follows:
"SEC. 1034. ROLLOVER OF GAIN ON SALE OF PRINCIPAL RESIDENCE."
(2) The table of sections for part III of subchapter O of chapter 1
is amended by striking out the item relating to section 1034 and
inserting in lieu thereof the following new item:
"Sec. 1034. Rollover of gain on sale of principal residence."
(3) Subparagraph (B) of section 1083(e)(1) (relating to certain 26 USC 1083.
acquisitions of real property) is amended by striking out "(relat-
ing to sale or exchange of residence)" and inserting in lieu
thereof "(relating to rollover of gain on sale of principal
residence)".
(4) Subparagraph (A) of section 1250(d)(7) (relating to gain from 26 USC 1250.
dispositions of certain depreciable realty) is amended by striking
out "relating to sale or exchange of residence" and inserting in
lieu thereof "relating to rollover of gain on sale of principal
residence".
(5) Subparagraph (C) of section 6212(c)(2) (relating to cross 26 USC 6212.
references) is amended by striking out "personal residence" and
i n s e r t i n g i n l i e u t h e r e o f "principal residence".
(6) Paragraph (4) of section 6504 (relating to cross references) 26 USC 6504.
is amended by striking out "residence" and inserting in lieu
t h e r e o f "principal residence' .
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1034
apply to sales and exchanges of residences after July 26, 1978, in note,
taxable years ending after such date.
Subtitle B—Minimum Tax Provisions
SEC. 421. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN
CORPORATIONS.
(a) IN GENERAL.—Part VI of subchapter A of chapter 1 (relating to
minimum tax for tax preferences) is amended by inserting immedi-
ately before section 56 the following new section:
92 STAT. 2872 PUBLIC LAW 95-600—NOV. 6, 1978
26 u s e 55. "SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN
CORPORATIONS.
"(a) ALTERNATIVE MINIMUM TAX IMPOSED.—In the case of a tax-
payer other than a corporation, if—
"(1) an amount equal to the sum of—
"(A) 10 percent of so much of the alternative minimum
tsixable income as exceeds $20,000 but does not exceed
$60,000 plus
"(B) 20 percent of so much of the alternative minimum
taxable income as exceeds $60,000 but does not exceed
$100,000, plus
"(C) 25 percent of so much of the alternative minimum
taxable income as exceeds $100,000, exceeds
"(2) the regular tax for the taxable year, then there is imposed
(in addition to all other taxes imposed by this title) a tax equal to
the amount of such excess.
"(b) DEFINITIONS.—For purposes of this section—
"(1) ALTERNATIVE MINIMUM TAXABLE INCOME.—The term 'al-
ternative minimum taxable income' means gross income—
"(A) reduced by the sum of the deductions allowed for the
taxable year,
"(B) reduced by the sum of any amounts included in
26 use 667. income under section 667, and
"(C) increased by an amount equal to the sum of the tax
preference items for—
"(i) adjusted itemized deductions (within the meaning
26 use 57. of section 57(a)(1)), and
"(ii) capital gains (within the meaning of section
57(a)(9)).
"(2) REGULAR TAX,—The term 'regular tax' means the taxes
imposed by this chapter for the taxable year (computed without
regard to this section and without regard to the taxes imposed by
26 use 72, 402, sections 72(m)(5)(B), 402(e), 408(f), and 667(b)) reduced by the sum
408, 667. of the credits allowable under subpart A of part IV of this
26 use 31. subchapter (other than under sections 31,39 and 43).
26 use 31, 39, «(C)CREDITS.-
"(1) CREDITS OTHER THAN THE FOREIGN TAX CREDIT NOT ALLOW-
ABLE.—For purposes of determining the amount of any credit
26 use 31. allowable under subpart A of part IV of this subchapter (other
26 use 33. than the foreign tax credit allowed under section 33(a)), the tax
imposed by this section shall not be treated as a tax imposed by
this chapter.
"(2) FOREIGN TAX CREDIT ALLOWED AGAINST ALTERNATIVE MINI-
MUM TAX.—The total amount of the foreign tax credit which can
be taken against the tax imposed by subsection (a) shall be
26 use 901, determined under section 901 and sections 903 through 908. For
903-908. purposes of this determination—
"(A) the amount of taxes paid or accrued to foreign
countries or possessions of the United States in the taxable
year shall be deemed to include an amount equal to the
26 use 33. lesser of (i) the foreign tax credit allowed under section 33(a)
in computing the regular tax for the taxable year, or (ii) the
tax imposed under subsection (a);
26 use 904. "(B) the limitation of section 904(a) shall be an amount
equal to the same proportion of the sum of the tax imposed
by this section against which such credit is taken and the
26 use 56. regular tax (excluding the tax imposed by section 56) which
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2873
the taxpayer's alternative minimun taxable income from
sources without the United States (but not in excess of the
taxpayer's entire alternative minimum taxable income)
bears to his entire alternative minimum taxable income for
the same taxable year. For purposes of the preceding sen-
tence, the entire alternative minimum taxable income shall
be reduced by an amount equal to the zero bracket amount;
"(C) the term 'alternative minimum taxable income from "Alternative
sources without United States' means the excess of the items minimum taxable
of gross income from sources without the United States over income from
that portion of the deductions taken into account in comput- sources without
United States".
ing alternative minimum taxable income which are de-
ducted from those items of gross income in computing
taxable income from sources without the United States; for
purposes of this subparagraph, and except as provided in
section 904, gross and taxable income from sources without
the United States shall be determined under part I of
subchapter N of chapter 1; and 26 u s e 861.
"(D) the amount of foreign taxes paid during the taxable
year which may be deemed to be paid in a preceding or
succeeding year under section 904(c), the limitation of sec- 26 u s e 904.
tion 904(a) shall be increased by the lesser of (i) the amount
described in subparagraph (B) or (ii) the tax imposed under
subsection (a).
"(3) CARRYOVER AND CARRYBACK OF CERTAIN CREDITS.—In any
taxable year in which a tax is imposed by this section (referred to
as the current taxable year)—
"(A) EMPLOYMENT CREDIT.—For purposes of determining
under section 53(c) the amount of any jobs credit carryback Ante, p. 2835.
or carryover to any other taxable year, the amount of the
limitation under section 53(a) for the current taxable year
shall be deemed to be—
"(i) the amount of the credit allowable under section
44B for the current taxable year without regard to this Ante, p. 2834.
subparagraph, reduced by
"(ii) the amount equal to the lesser of (I) the amount of
the credit allowable under section 44B for the current
taxable year without regard to this subparagraph, or
(II) the net tax imposed by this section for the current
taxable year.
"(B) WORK INCENTIVE PROGRAM CREDIT.—For purposes of
determining under section 50A(b) the amount of any work Ante, p. 2836.
incentive program credit carryback or carryover to any
other taxable year, the amount of the limitation under
section 50A(a)(2) for the current taxable year shall be
deemed to be—
"(i) the amount of the credit allowable under section
40 for the current taxable year without regard to this 26 u s e 40.
subparagraph, reduced by
"(ii) the amount equal to the lesser of (I) the amount of
the credit allowable under section 40 for the current
taxable year without regard to this subparagraph, or,
(II) the net tax imposed by this section for the current
taxable year reduced by the amount of reduction de-
scribed in clause (ii) of subparagraph (A).
"(C) INVESTMENT CREDIT.—For purposes of determining
under section 46(b) the amount of any investment credit 26 u s e 46.
39-194 O—80—pt. 3 16 : QL3
92 STAT. 2874 PUBLIC LAW 95-600—NOV. 6, 1978
carryback or carryover to any other taxable year, the
26 use 46. ^ amount of the limitation under section 46(a)(3) for the
current taxable year shall be deemed to be
"(i) the amount of the credit allowable under section
26 use 38. 38 for the current taxable year without regard to this
subparagraph, reduced by
"(ii) the amount equal to the lesser of (I) the amount of
the credit allowable under section 38 for the current
taxable year without regard to this subparagraph, or (II)
the net tax imposed by this section for the current
taxable year reduced by the sum of the amounts of
reduction described in clause (ii) of subparagraphs (A)
and(B).
"(D) NET TAX IMPOSED BY THIS SECTION.—For purposes of
this paragraph, the term 'net tax imposed by this section'
means the tax imposed by this section reduced by the foreign
26 use 33. tax credit allowed under section 33 (a), as modified by
paragraph (2).
26 use 57. (b) AMENDMENT OF SECTION 57.—Section 57 (relating to items of tax
preference) is amended—
(1) by adding the following at the end of paragraph (9) subsec-
tion (a):
"(D) PRINCIPAL RESIDENCE.—For purposes of subparagraph
(A), gain from the sale or exchange of a principal residence
26 use 1034. (within the meaning of section 1034) shall not be taken into
account,",
(2) by striking out the last sentence of subsection (a) and
inserting in lieu thereof the following: "Paragraphs (3) and (11)
shall not apply to a corporation other than an electing small
26 use 1371. business corporation (as defined in section 1371 (b)) and a
26 use 542. personal holding company (as defined in section 542). For pur-
26 use 56. poses of section 56, in the case of a taxpayer other than a
corporation, the adjusted itemized deductions described in para-
graph (1) and capital gains described in paragraph (9) shall not be
treated as items of tax preference."
(3) by striking out subsection (b)(1) and inserting the following
in lieu thereof:
"(1) IN GENERAL.—For purposes of paragraph (1) of subsection
(a), the amount of the adjusted itemized deductions for any
taxable year is the amount by which the sum of the itemized
26 use 63. deductions (as defined in section 63(f)) other than—
"(A) the deduction for State and local taxes provided by
26 use 164. section 164(a),
"(B) the deduction for medical, dental, etc., expenses
26 use 213. provided by section 213,
"(C) the deduction for casualty losses described in section
26 use 165. 165(c)(3), and
26 use 691. "(D) the deduction allowable under section 691(c),
exceeds 60 percent of the taxpayer's adjusted gross income
reduced by the items in subparagraphs (A) through (D) for the
taxable year.", and
(4) by striking out subparagraph (A) of subsection (b)(2), as
Post, p. 2897. amended by section 701 of this Act, and inserting in lieu thereof
\ the following:
"(A) IN GENERAL.—In the case of an estate or trust, for
purposes of paragraph (1) of subsection (a), the amount of the
adjusted itemized deductions for any taxable year is the
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2875
amount by which the sum of the deductions for the taxable
year other than—
"(i) the deductions allowable in arriving at adjusted
gross income,
"(ii) the deduction for personal exemption provided by
section 642(b), 26 USC 642.
"(iii) the deduction for casualty losses described in
section 165(c)(3), 26 USC 165.
"(iv) the deductions allowable under section 651(a),
661(a), or 691(c), 26 USC 651,
"(v) the deduction for State and local taxes provided ^^l' ^91.
by section 164(a), and
"(vi) the deductions allowable to a trust under section
642(c) to the extent that a corresponding amount is 26 USC 642.
included in the gross income of the beneficiary under
section 662(a)(1) for the taxable year of the beneficiary 26 USC 662.
with which or within which the taxable year of the trust
ends,
exceeds 60 percent of the adjusted gross income reduced by
the items in clauses (i) through (vi) for the taxable year."
(c) AMENDMENTS OF SECTION 58.—Section 58 (relating to rules for 26 USC 58.
application of part) is amended—
(1) by adding at the end of subsection (a) the following new
sentence: "In the case of a married individual who files a
separate return for the taxable year, the amount determined
under paragraph (1) of section 55(a) shall be an amount equal to 26 USC 55.
one-half of the amount which would be determined under such
paragraph if the amount of the individual's alternative mini-
mum taxable income were multiplied by 2.";
(2) by amending subsection (c) to read as follows:
"(c) ESTATES AND TRUSTS.—In the case of an estate or trust—
"(1) the sum of the items of tax preference for any t£ixable year
of the estate or trust shall be apportioned between the estate or
trust and the beneficiaries on the basis of the income of the estate
or trust allocable to each,
"(2) the $10,000 amount specified in section 56 applicable to 26 USC 56.
such estate or trust shall be reduced to an amount which bears
the same ratio to $10,000 as the portion of the sum of the items of
tax preference allocated to the estate or trust under paragraph
(1) bears to such sum, and
"(3) the liability for the tax imposed by section 55 (a) shall be
determined as in the case of a married individual filing sepa-
rately.", and .i
(3) by deleting subsection (i) (relating to the definition of
corporation).
(d) TAXES TAKEN INTO ACCOUNT IN CASE OF ACCUMULATION DISTRI-
BUTIONS BY TRUSTS.—The second sentence of section 666(b) (relating 26 USC 666.
to total taxes deemed distributed) is amended by striking out "taxes"
and inserting in lieu thereof "taxes (other than the tax imposed by
section 55)".
(e) TECHNICAL AMENDMENTS.—
(1) Paragraph (4) of section (5)(a) (as redesignated by section 401 26 USC 5.
of this Act) (relating to cross references relating to tax on
individuals) is amended to read as follows:
92 STAT. 2876 PUBLIC LAW 95-600—NOV. 6, 1978
"(4) For minimum tax for taxpayers other than corporations, see sec-
tion 55.".
26 use 443. (2) Subsection (d) of section 443 (relating to adjustment in
computing minimum tax for short periods) is amended to read as
follows:
"(d) ADJUSTMENT IN COMPUTING MINIMUM TAX FOR TAX PREFER-
ENCES.—If a return is made for a short period by reason of subsection
(a), then—
"(1) in the case of a taxpayer other than a corporation, the
alternative minimum taxable income for the short period shall
be placed on an annual basis by multiplying that amount by 12
and dividing the result by the number of months in the short
period, and the amount computed under paragraph (1) of section
26 use 55. 55(a) shall be the same part of the tax computed on the annual
basis as the number of months in the short period is of 12 months;
and
"(2) in the case of a corporation, the $10,000 amount specified
26 use 56. in section 56 (relating to minimum tax for tax preferences),
26 use 58. modified as provided by section 58, shall be reduced to the
amount which bears the same ratio to such specified amount as
the number of days in the short period bears to 365.".
26 use 511. (3) Subsection (d) of section 511 (relating to tax preferences) is
amended to read as follows:
"(d) TAX PREFERENCES.—
"(1) ORGANIZATIONS TAXABLE AT CORPORATE RATES.—If an orga-
nization is subject to tax on unrelated business taxable income
26 use 56. pursuant to subsection (a), the tax imposed by section 56 shall
apply to such organizations with respect to items of tax prefer-
ence which enter into the computation of unrelated business
taxable income in the same manner as section 56 applies to
corporations.
"(2) ORGANIZATIONS TAXABLE AS TRUSTS.—If an organization is
subject to tax on unrelated business taxable income pursuant to
subsection (b), the taxes imposed by section 55 and section 56 (as
the case may be) shall apply to such organization with respect to
items of tax preference which enter into the computation of
unrelated business taxable income."
26 use 871. (4) Paragraph (1) of section 871(b) (relating to tax on nonresi-
dent alien individuals) is amended by inserting ", section 55,"
after "section 1".
26 use 877. (5) Subsection (b) of section 877 (relating to expatriation to
avoid tax) is amended by inserting ", section 55," after
"section 1".
26 use 904. (6) Section 904(h) (relating to cross references) is amended to
read as follows:
"(h) CROSS REFERENCES.— /
• "(1) For increase of limitation under subsection (a) for taxes paid with
respect to amounts received which were included in the gross income of
the taxpayer for a prior taxable year as a United States shareholder with
respect to a controlled foreign corporation, see section 960(b).
"(2) For modiflcation of limitation under subsection (a) for purposes of
determining the amount of credit which can be taken by an individual
against the alternative minimum tax, see section 55(c).".
26 use 6015. (7) Paragraph (1) of section 6015(c) (defining estimated tax) is
amended by striking out "section 56" and inserting in lieu
thereof "section 55 or 56".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2877
(8) Subparagraph (A) of section 6362(b) (relating to qualified 26 USC 6362.
individual income taxes) is amended by striking out "section 56"
and inserting in lieu thereof "section 55 or 56".
(9) Paragraph (1) of section 6654(f) (relating to tax computed 26 USC 6654.
after applications of credit against tax) is amended by striking
out "section 56" and inserting in lieu thereof "section 55 or 56".
(f) CLERICAL AMENDMENT.—The table of sections for part VI of
subchapter A of chapter 1 is amended by adding at the beginning
thereof the following new item:
"Sec. 55. Alternative Minimum Tax for Taxpayers other than Corpora-
tions.".
(g) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 55 note.
apply to taxable years beginning after December 31,1978, except that
the amendment made by paragraph (1) of subsection (b) shall apply to
sales and exchanges made after July 26,1978, in taxable years ending
after such date.
SEC. 422. TREATMENT OF INTANGIBLE DRILLING COSTS FOR PURPOSES
OF THE MINIMUM TAX.
Subsection (b) of section 308 of the Tax Reduction and Simplifica- 26 USC 57 note.
tion Act of 1977 is amended by striking out ", and before January 1,
1978".
SEC. 423. AMENDMENT TO DEFINITION OF FOREIGN SOURCE CAPITAL
GAIN TAX PREFERENCES.
(a) GENERAL RULE.—Section 58(g)(2) (relating to capital gains and 26 USC 58.
stock options) is amended by striking out the period at the end of the
last sentence thereof, and inserting the following: "; except that, for
purposes of subparagraph (B), preferential treatment shall be deemed
not to be accorded to capital gain recognized on the receipt of
property (other than money) in exchange for stock of a corporation
which is engaged in the active conduct of a trade or business within
one or more foreign countries or possessions if (i) such exchange is
described in section 332,351,354,355,356, or 361, (ii) such exchange is 26 USC 332,
made in the foreign country or possession in which such corporation's 351, 354, 355,,
business is primarily carried on, (iii) such exchange is not subject to 3^^' 3^^-
tax by such foreign country or possession because it is regarded under
the laws of such country or possession as a transaction in which gain
.or loss is either not realized or not recognized, and (iv) such gain, if it
had been realized and recognized under the laws of such country or
possession, would not have been accorded preferential treatment and
would have been subject to tax at a rate of at least 28 percent (30 /
percent if the exchange occurs before January 1,1979). For purposes
of computing the minimum tax, if any, which may be payable on a
subsequent transaction involving any property received upon the
exchange of stock described in the preceding sentence, the property
received shall be treated as having the same basis in the taxpayer's
hands immediately after such exchange as such stock had immedi-
ately before such exchange."
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 58 note.
take effect on the date of the enactment of this Act.
92 STAT. 2878 PUBLIC LAW 95-600—NOV. 6, 1978
Subtitle C—Maximum Tax Provisions
SEC. 441. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF THE MAXI-
MUM TAX.
26 u s e 1348. (a) GENERAL RULE.—Subparagraph (b) of section 1348(b)(2) (relating
to definition of personal service income) is amended by striking out
"items of tax preference (as defined in section 57)" and inserting in
lieu thereof "items of tax preference described in subsection (a) (other
than paragraph (9)) of section 57". • ^
26 u s e 1348 (b) EFFECTIVE DATE.—
note. (1) GENERAL RULE.—The amendment made by subsection (a)
shall apply with respect to taxable years beginning after
October 31,1978.
(2) TRANSITIONAL RULES.—In the case of a taxable year which
begins before November 1,1978, and ends after October 31,1978,
the amendment made by subsection (a) shall apply with respect
to so much of the net capital gain of the taxpayer for the taxable
year as is attributable to sales or exchanges after October 31,
1978.
SEC. 442. DETERMINATION OF PERSONAL SERVICE INCOME FROM NON-
SALARIED TRADE OR BUSINESS ACTIVITIES.
(a) IN GENERAL.—Subparagraph (A) of section 1348(b)(1) (relating to
personal service income) is amended by adding at the end thereof the
following: "For purposes of this subparagraph, section 911(b) shall be
applied without regard to the phrase ', not in excess of 30 percent of
his share of net profits of such trade or business,'.".
26 u s e 1348 (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall
note. apply with respect to tsixable years beginning after December 31,
1978.
TITLE V—OTHER TAX PROVISION
Subtitle A—Administrative Provisions
SEC. 501. REPORTING REQUIREMENTS WITH RESPECT TO CHARGED TIPS.
26 use 6001. (a) RECORDS.—Section 6001 (relating to notice or regulations requir-
ing records, statements, and special returns) is amended by adding at
the end thereof the following: "The only records which an employer
shall be required to keep under this section in connection with
charged tips shall be charge receipts and copies of statements
26 use 6053. furnished by employees under section 6053(a)."
26 use 6041. (b) RETURNS.—Section 6041 (relating to information at source) is
amended by redesignating subsection (d) as subsection (c) and by
adding at the end thereof the following new subsection:
"(d) SECTION DOES NOT APPLY TO CERTAIN TIPS.—This section shall
26 use 6053. not apply to tips with respect to which section 6053(a) (relating to
reporting of tips) applies."
26 u s e 6001 (c) EFFECTIVE DATE.—The amendments made by this section shall
note. apply to payments made after December 31,1978.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2879
SEC. 502. EXTENSION OF OPTIONAL SMALL TAX CASE PROCEDURES AND
EXPANSION OF AUTHORITY OF COMMISSIONERS OF TAX
COURT.
(a) EXTENDING THE OPTIONAL SMALL TAX CASE PROCEDURES TO
ADDITIONAL TAXPAYERS.—
(1) IN GENERAL.—Subsection (a) of section 7463 (relating to 26 USC 7463.
small tax cases) is amended by striking out paragraphs (1) and (2)
and inserting in lieu thereof the following:
"(1) $5,000 for any one taxable year, in the case of the taxes
imposed by subtitle A, 26 USC 1.
"(2) $5,000, in the case of the tax imposed by chapter 11, or 26 USC 2001 et
"(3) $5,000 for any one calendar year, in the case of the tax *^9-
imposed by chapter 12,". 26 USC 2501 et
(2) C O N F O R M I N G AMENDMENTS.— ^^i-
(A) The heading of section 7463 is amended by striking out
"$i,50o" and inserting in lieu thereof "$5,ooo",
(B) the table of sections for part II of subchapter C of
chapter 76 is amended by striking out "$i,500" in the item
relating to section 7463 and inserting in lieu thereof "$5,000".
Ot>) AUTHORITY TO ASSIGN SMALL TAX CASES TO COMMISSIONERS.—
Section 7463 (relating to small tax cases) is amended by adding at the
end thereof the following new subsection:
"(g) COMMISSIONERS.—The chief judge of the Tax Court may assign
proceedings conducted under this section to be heard by the Commis-
sioners of the court, and the court may authorize a commissioner to
make the decision of the court with respect to any such proceeding,
subject to such conditions and review as the court may by rule
provide."
(c) AUTHORITY OF TAX COURT COMMISSIONERS TO ADMINISTER
OATHS, PROCURE TESTIMONY, ETC.—Subsection (a) of section 7456 26 use 7456.
(relating to the administration of oaths and testimony) is amended—
(1) by striking out "any judge of the Tax Court" each place it
appears and inserting in lieu thereof "any judge or commissioner
of the Tax Court"; and
(2) by striking out "by the judge" and inserting in lieu thereof
"by the judge or commissioner".
(d) EFFECTIVE DATES.— 26 USC 7463
(1) SUBSECTION (a).—The amendments made by subsection (a) note,
shall take effect on the first day of the first calendar month
beginning more than 180 days after the date of the enactment of
this Act.
(2) SUBSECTIONS (b) AND (C).—The amendments made by subsec-
tion (b) and (c) shall take effect on the date of the enactment of
this Act.
SEC. 503. DISCLOSURE OF RETURN INFORMATION TO CERTAIN FEDERAL
OFFICERS AND EMPLOYEES FOR PURPOSES OF TAX ADMIN-
ISTRATION, ETC.
(a) IN GENERAL.—Paragraph (2) of section 6103(h) (relating to 26 USC 6103.
Department of Justice) is amended—
(1) by striking out "A" after the heading, and inserting in lieu
thereof "In a matter involving tax administration, a",
(2) by striking out "attorneys" after "open to inspection by or
disclosure to", in paragraph (2) and inserting in lieu thereof
"officers and employees",
92 STAT. 2880 PUBLIC LAW 95-600—NOV. 6, 1978
(3) by inserting "any proceeding before a Federal grand jury
or" before "preparation for any proceeding" in paragraph (2),
(4) by striking out "in a matter involving tax administration"
after "or any Federal or State court".
(b) APPLICATION TO TAXPAYER.—
26 use 6103. (1) Section 6103(h)(2) is amended by striking out subparagraph
(A) and inserting in lieu thereof the following:
"(A) the taxpayer is or may be a party to the proceeding, or
the proceeding arose out of, or in connection with, determin-
ing the taxpayer's civil or criminal liability, or the collection
of such civil liability in respect of any tax imposed under this
•^ •' title;".
(2) Section 6103(h)(4) is amended by striking out subparagraph
(A) and inserting in lieu thereof the following:
"(A) the taxpayer is a party to the proceeding, or the
proceeding arose out of, or in connection with, determining
the taxpayer's civil or criminal liability, or the collection of
such civil liability, in respect of any tax imposed under this
title;".
SEC. 504. REFUND ADJUSTMENTS FOR AMOUNTS HELD UNDER CLAIM
OF RIGHT.
26 use 6411. (a) IN GENERAL.—Section 6411 (relating to application for adjust-
ment) is amended by adding at the end thereof the following new
subsection:
"(d) TENTATIVE REFUND OF TAX UNDER CLAIM OF RIGHT ADJUST-
MENT.—
"(1) APPLICATION.—A taxpayer may file an application for a
tentative refund of any amount treated as an overpajmient of tax
26 use 1341. for the taxable year under section 1341(b)(1). Such application
shall be in such manner and form as the Secretary may prescribe
by regulation and shall—
"(A) be verified in the same manner as an application
under subsection (a),
"(B) be filed during the period beginning on the date of
filing the return for such taxable year and ending on the
date 12 months from the last day of such taxable year, and
"(C) set forth in such detail and with such supporting data
such regulations prescribe—
"(i) the amount of the tax for such taxable year
computed without regard to the deduction described in
section 1341(a)(2),
"(ii) the amount of the tax for all prior taxable years
for which the decrease in tax provided in section
1341(a)(5)(B) was computed,
"(iii) the amount determined under section
1341(a)(5)(B),
"(iv) the amount of the overpayment determined
under section 1341(b)(1); and
"(v) such other information as the Secretary may
>' require.
"(2) ALLOWANCE OF ADJUSTMENTS.—Within a period of 90 days
from the date on which an application is filed under paragraph
(1), or from the last day of the month in which falls the last date
prescribed by law (including any extension of time granted the
taxpayer) for filing the return for taxable year in which the
overpayment occurs, whichever is later, the Secretary shall—
"(A) review the application.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 21381
"(B) determine the amount of the overpayment, and
"(C) apply, credit, or refund such overpayment in a
manner similar to the manner provided in subsection (b).
"(3) CONSOLIDATED RETURNS.—The provisions of subsection (c)
shall apply to an adjustment under this subsection to the same
extent and manner as the Secretary may by regulations
provide.".
(b) TECHNICAL AND CONFORMING AMENDMENTS.—
(1)(A) The heading for section 6411 is amended by inserting 26 USC 6411.
"AND REFUND" after "CARRYBACK".
(B) The table of sections for subchapter B of chapter 65 is
amended by inserting "and refund" after "carryback" in the
item relating to section 6411.
(2) Paragraph (3) of section 6213(b) (relating to assessments 26 USC 6213.
arising out of tentative carryback adjustments) is amended—
(A) by inserting "OR REFUND" after "CARRYBACK" in the
heading; and
(B) by inserting "or the amount described in section
1341(b)(1)" after "carryback".
(3) Subsection (m) of section 6501 (relating to tentative carry- 26 USC 6501.
back adjustment period) is amended by inserting "and refund"
after "carryback" the first place it appears.
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6411
apply to tentative refund claims filed on and after the date of the "0^.
enactment of this Act.
Subtitle B—Estate and Gift Tax Provisions
SEC. 511. REDUCTION OF VALUE TAKEN INTO ACCOUNT FOR ESTATE TAX
PURPOSES WHERE SPOUSE OF DECEDENT MATERIALLY PAR-
TICIPATED IN FARM OF OTHER BUSINESS
(a) I N GENERAL.—Section 2040 (relating to joint interests) is 26 USC 2040.
amended by adding at the end thereof the following new subsection:
"(c) VALUE WHERE SPOUSE OF DECEDENT MATERIALLY PARTICIPATED
IN FARM OR OTHER BUSINESS.—
"(1) IN GENERAL.—Notwithstanding subsections (a), in the case
of an eligible joint interest in section 2040(c) property, the value
included in the gross estate with respect to such interest by
reason of this section shall be—
"(A) the value of such interest, reduced by
"(B) the sum of—
"(i) the section 2040(c) value of such interest, and
"(ii) the adjusted consideration furnished by the dece-
dent's spouse.
"(2) LIMITATIONS.—
"(A) AT LEAST 50 PERCENT OF VALUE TO BE INCLUDED.—
Paragraph (1) shall in no event result in the inclusion in the
decedent's gross estate of less than 50 percent of the value of
the eligible joint interest.
"(B) AGGREGATE REDUCTION.—The aggregate decrease in
the value of the decedent's gross estate resulting from the
application of this subsection shall not exceed $500,000.
"(3) ELIGIBLE JOINT INTEREST DEFINED.—For purposes of para-
graph (1) the term 'eligible joint interest' means any interest in
property held by the decedent and the decedent's spouse as joint
tenants or as tenants by the entirety, but only if—
92 STAT. 2882 PUBLIC LAW 95-600—NOV. 6, 1978
"(A) such joint interest was created by the decedent, the
decedent's spouse, or both, and
"(B) in the case of a joint tenancy, only the decedent and
the decedent's spouse are joint tenants.
26 use 2040. "(4) SECTION 2040(C) PROPERTY DEFINED.—For purposes of para-
graph (1), the term 'section 2040(c) property' means any interest
in any real or tangible personal property which is devoted to use
as a farm or used for farming purposes (within the meaning of
26 use 2032A. paragraphs (4) and (5) of section 2032A(e)) or is used in any other
trade or business,
"(5) SECTION 2040(c) VALUE.—For purposes of paragraph (1), the
term 'section 2040(c) value' means—
"(A) the excess of the value of the eligible joint interest
• ; ,.; over the adjusted consideration furnished by the decedent,
the decedent's spouse, or both, multiplied by
"(B) 2 percent for each taxable year in which the spouse
materially participated in the operation of the farm or other
trade or business but not to exceed 50 percent.
"(6) ADJUSTED CONSIDERATION.—For the purpose of this subsec-
> tion, the term 'adjusted consideration' means—
"(A) the consideration furnished by the individual con-
cerned (not taking into account any consideration in the
form of income or gain from the business of which the
section 2040(c) property is a part) determined under rules
similar to the rules set forth in subsection (a), and
"(B) an amount equal to the amount of interest which the
consideration referred to in subparagraph (A) would have
earned over the period in which it was invested in the farm
or other business if it had been earning interest throughout
such period at 6 percent simple interest.
"(7) MATERIAL PARTICIPATION.—For purposes of paragraph (1),
material participation shall be determined in a manner similar
to the manner used for purposes of paragraph (1) of section
26 use 1402. 1402(a) (relating to net earnings from self-employment).
"(8) VALUE.—For purposes of this subsection, except where the
context clearly indicates otherwise, the term 'value' means value
determined without regard to this subsection.
(9) ELECTION TO HAVE SUBSECTION APPLY.—This subsection shall
apply with respect to a joint interest only if the estate of the
decedent elects to have this subsection apply to such interest.
Such an election shall be made not later than the time prescribed
26 use 6075. by section 6075(a) for filing the return of tax imposed by section
26 u s e 2001. 2001 (including extensions thereof), and shall be made in such
manner as the Secretary shall by regulations prescribe."
26 u s e 2040 (b) EFFECTIVE DATE.—The amendement made by subsection (a)
note. shall apply with respect to estates of decedents dying after Decem-
ber 31,1978.
SEC. 512. TREATMENT OF CERTAIN INTERESTS HELD BY DECEDENT'S
FAMILY FOR PURPOSES OF THE EXTENSION OF TIME FOR
PAYMENT OF ESTATE TAX PROVIDED BY SECTION 6166.
(a) INTEREST HELD BY MEMBER OF DECEDENT'S FAMILY TREATED AS
26 use 6166. HELD BY DECEDENT.—Paragraph (2) of section 6166(b) (relating to
definitions and special rules) is amended by adding at the end thereof
the following new subparagraph:
"(D) CERTAIN INTERESTS HELD BY MEMBERS OF DECEDENT'S
FAMILY.—All stock and all partnership interests held by the
decedent or by any member of his family (within the mean-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2883
ing of section 267(c)(4)) shall be treated as owned by the 26 use 267.
decedent,"
(b) ELECTION FOR PURPOSES OF THE 20-PERCENT REQUIREMENTS WITH
RESPECT TO PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READ-
ILY TRADABLE.—Subsection (b) of section 6166 (relating to definitions 26 USC 6166.
and special rules) is amended by adding at the end thereof the
following new paragraph:
"(7) PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READILY
TRADABLE.—
"(A) I N GENERAL.—If the executor elects the benefits of
this paragraph (at such time and in such manner as the
' Secretary shall by regulations prescribe), then—
"(i) for purposes of paragraph (l)(B)(i) or (l)(C)(i)
(whichever is appropriate) and for purposes of subsec-
tion (c), any capital interest in a partnership and any
non-readily-tradable stock which (after the application
of paragraph (2)) is treated as owned by the decedent
shall be treated as included in determining the value of
the decedent's gross estate,
"(ii) the executor shall be treated as having selected
under subsection (a)(3) the date prescribed by section
6151(a), and 26 USC 6151.
"(iii) section 66010") (relating to 4-percent rate of 26 USC 6601.
interest) shall not apply.
"(B) NON-READILY-TRADABLE STOCK DEFINED.—For purposes
of this paragraph, the term 'non-readily-tradable stock'
means stock for which, at the time of the decedent's death,
there was no market on a stock exchange or in an over-the-
counter market."
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6166
apply with respect to the estates of decedents dying after the date of "ote.
the enactment of this Act.
SEC. 513. SUBORDINATION OF SPECIAL LIENS FOR ADDITIONAL ESTATE
TAX ATTRIBUTABLE TO FARM, ETC., VALUATION.
(a) GENERAL RULE.—Subsection (d) of section 6325 (relating to 26 USC 6325.
subordination of lien) is amended by striking out "or" at the end of
paragraph (1), by striking out the period at the end of paragraph (2)
and inserting in lieu thereof ", or", and by adding at the end thereof
the following new paragraph:
"(3) in the case of any lien imposed by section 6324B, if the 26 USC 6324B.
Secretary determines that the United States will be adequately
secured after such subordination."
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 6325
shall apply with respect to the estates of decedents dying after "ote.
December 31,1976.
SEC. 514. AMENDMENT OF GOVERNING INSTRUMENTS TO MEET RE-
QUIREMENTS FOR GIFTS OF SPLIT INTEREST TO CHARITY.
(a) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS
IN THE CASE OF ESTATE TAX.—The first sentence of paragraph (3) of
section 2055(e) is amended to read as follows: "In the case of a will 26 USC 2055.
executed before December 31, 1977, or a trust created before such
date, if a deduction is not allowable at the time of the decedent's
death because of the failure of an interest in property which passes
from the decedent to a person, or for a use, described in subsection (a) J
to meet the requirements of subparagraph (A) or (B) of paragraph (2)
of this subsection, and if the governing instrument is amended or
92 STAT. 2884 PUBLIC LAW 95-600—NOV. 6, 1978
conformed on or before December 31, 1978, or, if later, on or before
the 30th day after the date on which judicial proceedings begun on or
before December 31, 1978 (which are required to amend or conform
the governing instrument), become final, so that interest is in a trust
which meets the requirements of such subparagraph (a) or (B) (as the
case may be), a deduction shall nevertheless be allowed."
26 use 2055 (b) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS
note. IN THE CASE OF INCOME AND GiFT TAXES.—Under regulations pre-
scribed by the Secretary of the Treasury or his delegate, in the case of
trusts created before December 31, 1977, provisions comparable to
section 2055(e)(3) of the Internal Revenue Code of 1954 (as amended
by subsection (a)) shall be deemed to be included in sections 170 and
26 use 170, 2522 of the Internal Revenue Code of 1954.
2522
SEC. 515. DEFERRAL OF CARRYOVER BASIS RULES.
The following provisions are each amended by striking out "Decem-
ber 31, 1976" and inserting in Heu thereof '^'December 31, 1979":
26 use 1014. (1) the caption and text of section 1014(d) (relating to basis of
property acquired from the decedent);
26 use 1016. (2) section 1016(a)(23) (relating to adjustments to basis);
26 use 1023. (3) the heading of section 1023 (relating to carryover basis for
certain property);
(4) section 1023(a) (relating to general rule for carryover basis);
(5) the item relating to section 1023 in the table of sections for
part II of subchapter O of chapter I; and
26 use 1023 (6) section 2005(f)(1) of the Tax Reform Act of 1976 (relating to
note. effective dates for carryover basis provisions).
Subtitle C—Other Excise Tax Provisions
SEC. 520. REDUCTION OP ADMINISTRATION TAX ON PRIVATE FOUNDA-
TIONS.
26 use 4940. (a) IN GENERAL.—Subsection (a) of section 4940 (relating to excise
tax based on investment income) is amended by striking out "4
percent" and inserting in lieu thereof "2 percentf'.
26 use 4940 (b) EFFECTIVE DATE.—The amendment made by the first section of
note. this Act shall apply to taxable years beginning after September 30,
1977.
SEC. 521. EXCISE TAX ON CERTAIN GAMING DEVICES.
(a) INCREASE IN CREDIT FOR STATE TAX.—Paragraph (2) of section
26 use 4464. 4464(b) (relating to limitations on the credit for State-imposed taxes)
is amended by striking out "80 percent" in the heading and text
thereof and inserting in lieu thereof "95 percent".
Repeal. (b) REPEAL OF OCCUPATIONAL TAX.—Subchapter B of chapter 36 is
26 use repealed.
4461-4464. (c) CONFORMING AMENDMENTS.—
26 use 4402. (1) Section 4402(2) (relating to exemptions from taxes on
wagering) is amended to read as follows:
"(2) CoiN-OPERATED DEVICES.—On any wager placed in a coin-
26 use 4462. Operated device (as defined in section 4462 as in effect for years
beginning before July 1,1980), or on any amount paid, in lieu of
inserting a coin, token, or similar object, to operate a device
described in section 4462(a)(2) (as so in effect), or".
26 use 4901. (2) Subsection (a) of section 4901 (relating to payment of
occupational tax) is amended by striking out "or 4461(a)(1) (coin-
operated gaming devices)".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2885
(d) EFFECTIVE DATES.— 26 use 4464
(1) The amendment made by subsection (a) shall apply with note.
respect to years ending June 30, 1979, and June 30, 1980.
(2) The amendments made by subsections (b) and (c) shall apply
with respect to years beginning after June 30,1980.
SEC. 522. TREATMENT OF CERTAIN PRIVATE FOUNDATIONS FOR PUR-
POSES OF SECTION 4942.
(a) GENERAL RULE.—Subsection 0") of section 4942 (relating to other 26 use 4942.
definitions) is amended by adding at the end thereof the following
new paragraph:
"(6) CERTAIN ELDERLY CARE FACILITIES.—For purposes of this
section (but no other provisions of this title), the term 'operating
foundation' includes any organization which, on May 26, 1969,
and at all times thereafter before the close of the taxable year,
operated and maintained as its principal functional purpose
facilities for the long-term care, comfort, maintenance, or educa-
tion of permanently and totally disabled persons, elderly per-
sons, needy widows, or children but only if such organization
meets the requirements of paragraph (3)(B)(ii)."
Ot)) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 use 4942
apply to taxable years beginning after December 31,1969. note.
Subtitle D—Income Tax Provisions
SEC. 530. CONTROVERSIES INVOLVING WHETHER INDIVIDUALS ARE EM-
PLOYEES FOR PURPOSES OF THE EMPLOYMENT TAXES.
(a) TERMINATION OF CERTAIN EMPLOYMENT TAX LIABILITY FOR 26 use 3401
PERIODS BEFORE 1980.— note.
(1) I N GENERAL.—If—
(A) for purposes of emplo3mient taxes, the taxpayer did not
treat an individual as an employee for any period ending
before January 1,1980, and
(B) in the case of periods after December 31, 1978, all
Federal tax returns (including information returns) required
to be filed by the taxpayer with respect to such individual for
such period are filed on a basis consistent with the tax-
payer's treatment of such individual as not being an
employee,
then, for purposes of appljdng such taxes for such period with
respect to the taxpayer, the individual shall be deemed not to be
an employee unless the taxpayer had no reasonable basis for not
treating such individual as an employee.
(2) STATUTORY STANDARDS PROVIDING ONE METHOD OF SATISFY-
ING THE REQUIREMENTS OF PARAGRAPH (i).—For purposes of
paragraph (1), a taxpayer shall in any case be treated as having a
reasonable basis for not treating an individual as an employee
for a period if the taxpayer's treatment of such individual for
such period was in reasonable reliance on any of the following:
(A) judicial precedent, published rulings, technical advice
with respect to the taxpayer, or a letter ruling to the
taxpayer;
(B) a past Internal Revenue Service audit of the taxpayer
in which there was no assessment attributable to the treat-
ment (for employment tax purposes) of the individuals
holding positions substantially similar to the position held
by this individual; or
92 STAT. 2886 PUBLIC LAW 95-600—NOV. 6, 1978
^ (C) long-standing recognized practice of a significant seg-
ment of the industry in which such individual was engaged.
(3) CONSISTENCY REQUIRED IN THE CASE OF I 9 7 9 TAX TREAT-
MENT.—Paragraph (1) shall not apply with respect to the treat-
ment of any individual for employment tax purposes for any
period ending after December 31, 1978, and before January 1,
1980, if the taxpayer (or a predecessor) has treated any individual
holding a substantially similar position as an employee for
purposes of the employment tgixes for any period beginning after
December 31,1977.
(4) REFUND OR CREDIT OF OVERPAYMENT.—If refund or credit of
any overpayment of an employment tax resulting from the
application of paragraph (1) is not barred on the date of the
enactment of this Act by any law or rule of law, the period for
filing a claim for refund or credit of such overpayment (to the
extent attributable to the application of paragraph (1)) shall not
expire before the date 1 year after the date of the enactment of
this Act.
(b) PROHIBITION AGAINST REGULATIONS AND RUUNGS ON EMPLOY-
MENT STATUS.—No regulation or Revenue Ruling shall be published
on or after the date of the enactment of this Act and before January 1,
1980 (or, if earlier, the effective date of any law hereafter enacted
clarifying the employment status of individuals for purposes of the
emplo5anent taxes) by the Department of the Treasury (including the
Internal Revenue Service) with respect to the employment status of
any individual for purposes of the employment taxes.
(c) DEFINITIONS.—For purposes of this section—
(1) EMPLOYMENT TAX.—The term "employment tax" means
any tax imposed by subtitle C of the Internal Revenue Code of
26 use 3101. 1954.
(2) EMPLOYMENT STATUS.—The term "emplojntnent status"
means the status of an individual, under the usual common law
rules applicable in determining the employer-employee relation-
ship, as an employee or as an independent contractor (or other
individual who is not an employee).
SEC. 531. CERTAIN ORIGINAL STOCKHOLDERS OF COOPERATIVE HOUS-
ING CORPORATIONS.
26 use 216. (a) I N GENERAL.—Subsection (b) of section 216 (relating to deduc-
tion of taxes, interest, and business depreciation by cooperative
housing corporation tenant-stockholder) is amended by adding at the
end thereof the following new paragraph:
"(6) STOCK OWNED BY PERSON FROM WHOM THE CORPORATION
ACQUIRED ITS PROPERTY.—
"(A) IN GENERAL.—If the original seller acquires any stock
of the corporation—
"(i) from the corporation by purchase, or
"(ii) by foreclosure (or by instrument in lieu of fore-
closure) of any purchase-money security interest in such
stock held by the original seller,
the original seller shall be treated as a tenant-stockholder
for a period not to exceed 3 years from the date of
acquisition.
"(B) ORIGINAL SELLER MUST HAVE RIGHT TO OCCUPY APART-
MENT OR HOUSE.—Subparagraph (A) shall apply with respect
to any acquisition of stock only if, together with such
acquisition, the original seller acquires the right to occupy
an apartment or house to which such stock is appurtenant.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2887
For purposes of the preceding sentence, there shall not be
taken into account the fact that, by agreement with the
corporation, the original seller or its nominee may not
occupy the house or apartment without the prior approval of
the corporation.
"(C) ORIGINAL SELLER DEFINED.—For purposes of this para-
graph, the term 'original seller' means the person from
whom the corporation has acquired the apartments or
houses (or leaseholds therein).''
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 use 216
apply to stock acquired after the date of the enactment of this Act. note.
Subtitle E—Other Income Tax Provisions
SEC. 540. DEPOSITS IN CERTAIN BRANCHES OF PUERTO RICAN SAVINGS
AND LOAN ASSOCIATIONS,
(a) I N GENERAL.—Subparagraph (F) of section 861(a)(1) (relating to 26 USC 861.
income from sources within the United States) is amended to read as
follows:
"(F) interest—
"(i) on deposits with a foreign branch of a domestic
corporation or a domestic partnership if such branch is
engaged in the commercial banking business, and
"(ii) on amounts satisfying the requirements of para-
graph (2) of subsection (c) which are paid by a foreign
branch of a domestic corporation or a domestic
partnership,".
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 861
apply to taxable years beginning after the date of the enactment of "ote.
this Act.
SEC. 541. TAXATION OF ALASKA NATIVE CLAIMS SETTLEMENT ACT
CORPORATIONS.
Section 21 of the Alaska Native Claims Settlement Act (43 U.S.C.
1620) is amended by adding three new subsections at the end thereof,
as follows:
"(g) In the case of any Native Corporation established pursuant to
this Act, income for purposes of any form of Federal, State, or local
taxation shall not be deemed to include the value of—
"(1) the receipt, acquisition, or use of any resource information
or analysis (including the receipt of any right of access to such
information or analysis) relating to lands or interests therein
conveyed, selected but not conveyed, or available for selection
pursuant to this Act;
"(2) the promise or performance by any person or by any
Federal, State, or local government agency of any professional or
technical services relating to the resources of lands or interests
therein conveyed, selected but not conveyed, or available for
selection pursuant to this Act, including, but not limited to,
services in connection with exploration on such lands for oil, gas,
or other minerals; and
"(3) the expenditure of funds, incurring of costs, or the use of
any equipment or supplies by any person or any Federal, State,
or local government agency, or any promise, agreement, or other
arrangement by such person or agency to expend funds or use
any equipment or supplies for the purpose of creating, develop-
ing, or acquiring the resource information or analysis described
92 STAT. 2888 PUBLIC LAW 95-600—NOV. 6, 1978
in paragraph (1) or for the purpose of performing or otherwise
furnishing the services described in paragraph (2): Provided,
That this paragraph shall not apply to any funds paid to a Native
Corporation established pursuant to this Act or to any subsidiary
thereof.
This subsection shall be effective as of December 18,1971, and, with
respect to each Native Corporation, shall remain in full force and
effect for a period of twenty years thereafter or until the Corporation
has received conveyance of its full land entitlement, whichever first
occurs. Except as set forth in this subsection and in subsection (d)
hereof, all rents, royalties, profits, and other revenues or proceeds
derived from real property interests selected and conveyed pursuant
43 use 1611, to sections 12 and 14 shall be taxable to the same extent as such
1613. revenues or proceeds are taxable when received by a non-Native
individual or corporation.
"Oi)(l) Notwithstanding any other provision of law, each Native
Corporation established pursuant to this Act shall be deemed to have
become engaged in carrying on a trade or business as of the date it
was incorporated for purposes of any form of Federal, State, or local
taxation.
"(2) All expenses heretofore or hereafter paid or incurred by a
Native Corporation established pursuant to this Act in connection
with the selection or conveyance of lands pursuant to this Act, or in
assisting another Native Corporation within or for the same region in
the selection or conveyance of lands under this Act, shall be deemed
to be or to have been ordinary and necessary expenses of such
Corporation, paid or incurred in carrying on a trade or business for
purposes of any form of Federal, State, or local taxation."
"(i) PERSONAL HOLDING COMPANY ACT EXEMPTION.—No Corpora-
tion created pursuant to the Alaska Native Claims Settlement Act
shall be considered to be a personal holding company within the
26 use 542. meaning of section 542(a) of the Internal Revenue Code of 1954 prior
to January 1,1992."
SEC. 542. REPLACEMENT OF LIVESTOCK WITH OTHER FARM PROPERTY
WHERE THERE HAS BEEN ENVIRONMENTAL CONTAMINA-
TION.
26 use 1033. (a) IN GENERAL.—Section 1033 (relating to involuntary conversions)
is amended by redesignating subsections (f) and (g) £is subsections (g)
and (h), respectively, and by inserting after subsection (e) the follow-
ing new subsection:
"(f) REPLACEMENT OF LIVESTOCK WITH OTHER FARM PROPERTY
WHERE THERE HAS BEEN ENVIRONMENTAL CONTAMINATION.—For
purposes of subsection (a), if, because of soil contamination or other
environmental contamination, it is not feasible for the taxpayer to
reinvest the proceeds from compulsorily or involuntarily converted
livestock in property similar or related in use to the livestock so
converted, other property (including real property) used for farming
purposes shall be treated as property similar or related in service or
use to the livestock so converted.
26 use 1033 (b) EFFECTIVE DATE.—The amendments made by subsection (a)
note. shall apply with respect to taxable years beginning after
December 31,1974.
SEC. 543. CERTAIN PAYMENTS NOT INCLUDED IN GROSS INCOME.
(a) I N GENERAL.—Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by redesig-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2889
nating section 126 as 127 and by inserting immediately after section 26 use 127.
125 the following new section;
"SEC. 126. CERTAIN COST-SHARING PAYMENTS. 26 USC 126.
"(a) GENERAL RULE.—Gross income does not include the excludable
portion of payments received under—
"(1) The rural clean water program authorized by section 208(j)
of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)).
"(2) The rural abandoned mine program authorized by section
406 of the Surface Mining Control and Reclamation Act of 1977
(30 U.S.C. 1236).
"(3) The water bank program authorized by the Water Bank
Act (16 U.S.C. 1301 etseq.).
"(4) The emergency conservation measures program author-
ized by title IV of the Agricultural Credit Act of 1978. Ante, p. 433.
"(5) The agricultural conservation program authorized by the
Soil Conservation and Domestic Allotment Act (16 U.S.C. 590a).
"(6) The great plains conservation program authorized by
section 16 of the Soil Conservation and Domestic Policy Act (16
U.S.C. 590p(b)).
"(7) The resource conservation and development program
authorized by the Bankhead-Jones Farm Tenant Act and by the
Soil Conservation and Domestic Allotment Act (7 U.S.C. 1010; 16
U.S.C. 590a etseq.).
"(8) The forestry incentives program authorized by section 4 of
the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103). Ante, p. 367.
"(9) Any small watershed program administered by the Secre-
tary of Agriculture which is determined by the Secretary of the
Treasury to be substantially similar to the type of programs
described in paragraphs (1) through (8).
"(10) Any State program under which payments are made to
individuals primarily for the purpose of conserving soil, protect-
ing or restoring the environment, improving forests, or providing
a habitat for wildlife.
"(b) EXCLUDABLE PORTION.—For purposes of this section, the term
'excludable portion'means that portion (or all) of a payment made to
any person under any program described in subsection (a) which—
"(1) is determined by the Secretary of Agriculture to be made
primarily for the purpose of conserving soil and water resources,
protecting or restoring the environment, improving forests, or
providing a habitat for wildlife, and
"(2) is determined by the Secretary of the Treasury as not
increasing substantially the annual income derived from the
property.
"(c) APPUCATION WITH OTHER SECTIONS.—No deduction or credit
allowable under any other provision of this chapter shall be allowed
with respect to any expenditure made with the use of payments
described in subsection (a) or with respect to any property acquired
with any payment described in subsection (a) (to the extent that the
basis is allocable to the use of such payments). Notwithstanding any
provision of section 1016 to the contrary, no adjustment to basis shall 26 USC 1016.
be made with respect to property acquired through the use of such
payments, to the extent that such adjustment would reflect the
amount of such payment." i
(b) CLERICAL AMENDMENT.—The table of sections for such part is
amended by striking out the last item and inserting in lieu thereof
the following:
39-194 O—80—pt. 3 17 : QL3
92 STAT. 2890 PUBLIC LAW 95-600—NOV. 6, 1978
"Sec. 126. Certain cost-sharing payments. .
"Sec. 127. Cross references to other Acts."
(c) RECAPTURE OF GAIN FROM DISPOSITION OF PROPERTY.—
(1) Part IV of subchapter P of chapter 1 (relating to special
rules for determining capital gains and losses) is amended by
adding at the end thereof the following:
26 u s e 1255. "SEC. 1255. GAIN FROM DISPOSITION OF SECTION 126 PROPERTY.
"(a) GENERAL RULE.—
"(1) ORDINARY INCOME.—Except as otherwise provided in this
Ante, p. 2889. section, if section 126 property is disposed of, the lower of—
"(A) the applicable percentage of the aggregate payinents,
with respect to such property, excluded from gross income
under section 126, or
> f .^ "(B) the excess of—
"(i) the amount realized (in the case of a sale, ex-
change, or involuntary conversion), or the fair market
value of such section 126 property (in the case of any
other disposition), over
"(ii) the adjusted basis of such property shall be
treated as ordinary income.
"(2) SECTION 126 PROPERTY.—For purposes of this section,
'section 126 property' means any property acquired, improved, or
otherwise modified by the application of payments excluded from
gross income under section 126.
"(3) APPUCABLE PERCENTAGE,—For purposes of this section, if
section 126 property is disposed of less than 10 years after the
date of receipt of payments excluded from gross income under
section 126, the applicable percentage is 100 percent. If section
' 126 property is disposed of more than 10 years after such date,
the applicable percentage is 100 percent reduced (but not below
zero) by 10 percent for each year or part thereof in excess of 10
years such property was held after the date of receipt of the
payments.
"(b) SPECIAL RULES.—Under regulations prescribed by the
Secretary—
26 use 1245. "(1) rules similar to the rules applicable under section 1245
shall be applied for purposes of this section, aiid
"(2) amounts treated as ordinary income under this section
shall be treated in the same manner as amounts treated as
ordinary income under section 1245."
(2) The table of sections for such part is amended by adding at
the end thereof the following new item:
"Sec. 1255. Gain from disposition of section 126 property."
26 use 126 (d) EFFECTIVE DATE.—The amendments made by this section shall
note. apply with respect to grants made under the programs after Septem-
ber 30,1979.
Subtitle F—Studies
SEC. 551. STUDY OF SIMPLIFICATION OF TAX RETURNS.
26 use 6011 (a) STUDY.—The Secretary of the Treasury shall conduct a full and
note. complete study and investigation with respect to—
(1) provisions of the Internal Revenue Code of 1954 which, due
to their complexity, may hamper the ability of individuals to
prepare accurate and complete Federal income tax returns, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2891
(2) methods of simplifying Federal income tax return forms
and instructions accompanying such forms.
(b) TASK FORCE.—
(1) I N GENERAL.—The Secretary of the Treasury shall establish
a task force to assist him in the conduct of the study and
investigation under subsection (a).
(2) REPORTS OF TASK FORCE.—The task force shall report from
time to time on its progress directly to the Secretary and shall
submit a final report to the Secretary which includes its findings
with respect to such study and investigation and any recommen-
dations with respect thereto. Such f i n ^ report shall be submitted
by such time as is necessary to enable the Secretary to file the
report called for in subsection (c) of this section.
(3) AUTHORITY TO HIRE.—The Secretary is authorized to appoint
such employees, not in excess of 10, as may be necessary to carry
out the functions of the task force without regard to the provi-
sions of chapter 51 and subchapter III of chapter 53 of title 5, 5 use 5ioi,
United States Code, except that such employees shall not be paid ^^^^ ^' ^^9
at a rate in excess of the annual rate of pay under grade GS-18 of
the General Schedule under section 5332 of such title 5.
(c) REPORT.—The Secretary, after studying the reports and recom-
mendations of the task force under subsection (b), shall, not later
than 2 years after the date of the enactment of this Act, submit to the
Committee on Finance of the Senate and the Committee on Ways and
Means of the House of Representatives a final report on the study and
investigation conducted under this section, together with such recom-
mendations for legislation as he finds necessary.
SEC. 552. STUDY OF TAX INCENTIVES FOR EXPENDITURES REQUIRED BY
OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION AND
MINING HEALTH AND SAFETY ADMINISTRATION.
(a) STUDY.—The Secretary of the Treasury shall make a full and 26 use 7801.
complete study and investigation with respect to the appropriateness
of providing additional tax incentives for expenditures required by
the Occupational Safety and Health Act (OSHA) and the Mining 29 use 651
Safety and Health Administration (MSHA) of the Department of "o^^.
Labor.
0)) REPORT.—Before April 1, 1979, the Secretary of the Treasury
shall submit to the Committee on Finance of the Senate and the
Committee on Ways and Means of the House of Representatives a
report of its study and investigation together with its recommenda-
tions for legislation.
SEC. 553. STUDY OP TAXATION OF NONRESIDENT ALIEN REAL ESTATE
TRANSACTIONS IN THE UNITED STATES.
(a) STUDY.—The Secretary of the Treasury shall make a full and 26 use 7801
complete study and analysis of the appropriate tax treatment to be "o*^^-
given to income derived from, or gain realized on, the sale of interests
in United States property held by nonresident aliens or foreign
corporations.
(b) REPORT.—The Secretary of the Treasury shall submit to the
Committee on Finance of the Senate and the Committee on Ways and
Mesuis of the House of Representatives a final report of its study,
together with its recommendations, no later than 6 months from the
date of enactment of this Act.
92 STAT. 2892 PUBLIC LAW 95-600—NOV. 6, 1978
26 u s e 50A SEC. 554. REPORT ON EFFECTIVENESS OF JOBS CREDIT.
"°*^' (a) REPORT ON TARGETED JOBS CREDIT.—Not later than June 30,
1981, the Secretary of the Treasury and the Secretary of Labor shall
jointly submit to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate a report
on—
(1) the effectiveness of the targeted jobs credit provided by the
amendments made by this section in improving the employment
situation of the targeted groups, and
(2) the types of employers claiming such credit.
(b) GENERAL JOBS CREDIT.—The report required under paragraph
(1) shall also include an evaluation of—
(1) the effectiveness of the general jobs credit provided by
Ante, p. 2834. section 44B of the Internal Revenue Code of 1954 for 1977 and
1978 in stimulating employment and enhancing economic
growth, and
(2) the types of employers claiming such credit.
SEC. 555. STUDY OF EFFECTS OF CHANGES IN THE TAX TREATMENT OF
CAPITAL GAINS ON STIMULATING INVESTMENT AND ECO-
NOMIC GROWTH.
26 use 1201 Not later than September 30, 1981, the Secretary of the Treasury
note. shall submit to the Committee on Ways and Means of the House of
Representatives and to the Committee on Finance of the Senate a
report on the effectiveness of the changes made by this title in the tax
treatment of capital gains of individuals and corporations in stimu-
lating investment and increasing the rate of economic growth. The
report shall also include an analysis of the effects these changes had
on employment growth and on income tax revenues.
TITLE VI—GENERAL STOCK OWNERSHIP
CORPORATIONS
SEC. 601. ESTABLISHMENT AND TAXATION OF GENERAL STOCK OWNER-
SHIP CORPORATIONS AND THEIR SHAREHOLDERS.
(a) IN GENERAL.—Chapter 1 (relating to normal taxes and surtaxes)
is amended by adding at the end thereof the following new
subchapter:
"Subchapter U—General Stock Ownership
Corporations
"Sec. 1391. Definitions.
"Sec. 1392. Election by general stock ownership corporation.
"Sec. 1393. Corporation taxable income taxed to shareholders.
"Sec. 1394. Rules applicable to distributions of electing genered stock owner-
ship corporations.
"Sec. 1395. Adjustments to basis of stock of shareholders.
"Sec. 1396. Minimum distribution.
"Sec. 1397. Special rules applicable to earnings and profits of an electing
general stock ownership plan.
26 u s e 1391. "SEC. 1391. DEFINITIONS.
"(a) GENERAL STOCK OWNERSHIP CORPORATION.—For purposes of
this subchapter, the term 'general stock ownership corporation'
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2893
(hereinafter referred to as a *GSOC') means a domestic corporation
which—
"(1) is not a member of an affiliated group (as defined in section
1504), and 26 USC 1504.
"(2) is chartered and organized after December 31, 1978, and
before January 1,1984;
"(3) is chartered by an act of a State legislature or as a result of
a State-wide referendum;
* '(4) has a charter providing—
"(A) for the issuance of only 1 class of stocks,
"(B) for the issuance of shares only to eligible individuals
(as defined in subsection (c));
"(C) for the issuance of at least one share to each eligible
individual, unless such eligible individual elects within one
year after the date of issuance not to receive such share;
"(D) that no share of stock shall be transferable—
"(i) by a shareholder other than by will or the laws of
descent and distribution until after the expiration of 5
years from the date such stock is issued by the GSOC
except where the shareholder ceases to be a resident of
the State;
"(ii) to any person other than a resident individual of
the chartering State;
"(iii) to any individual who, after the transfer, would
own more than 10 shares of the GSOC;
"(E) that such corporation shall qualify as a GSOC under
the Internal Revenue Code;
"(5) is empowered to invest in properties (but not in properties
acquired by it or for its benefit through the right of eminent
domain).
For purposes of this subsection, section 1504(a) shall be applied by
substituting '20 percent' for '80 percent' wherever it appears.
"(b) ELECTING GSOC.—For purposes of this subchapter, the term
'electing GSOC means a GSOC which files an election under section
1392 which, under section 1392, is in effect for such taxable year.
"(c) ELIGIBLE INDIVIDUALS.—For purposes of subsection (a), the
term 'eligible individual' means an individual who is, as of a date
specified in the State's enabling legislation for the GSOC, a resident
of the chartering State and who remains a resident of such State
between that date and the date of issuance.
"(d) TREATED AS PRIVATE CORPORATION.—For purposes of this title,
a GSOC shall be treated as a private corporation and not as a
governmental unit.
"(e) STUDY OF GENERAL STOCK OWNERSHIP CORPORATIONS.—The
staff of the Joint Committee on Taxation shall prepare a report on
the operation and effects of this subchapter relating to GSOC's. An
interim report shall be filed within two years after the first GSOC is
formed and a final report shall be filed by September 30, 1983.
"SEC. 1392. ELECTION BY GSOC. 26 USC 1392.
"(a) ELIGIBILITY.—Except as provided in section 1393, any GSOC 26 use 1393.
may elect, in accordance with the provisions of this section, not to be
subject to the taxes imposed by this chapter.
"(b) EFFECT.—If a GSOC makes an election under subsection (a)
then—
"(1) with respect to the taxable years of the GSOC for which
such election is in effect, such corporation shall not be subject to
the taxes imposed by this chapter and, with respect to such
92 STAT. 2894 PUBLIC LAW 95-600—NOV. 6, 1978
n oo«r taxable years and all succeeding taxable years, the provisions of
Post, p. 2895. section 1396 shall apply to such GSOC, and
"(2) with respect to each such taxable year, the provisions of
Infra. sections 1393, 1394, and 1395 shall apply to the shareholders of
/'o5<, p. 2895. such GSOC.
"(c) WHERE AND HOW MADE.—An election under subsection (a) may
be made by a GSOC at such time and in such manner as the Secretary
shall prescribe by regulations.
"(d) YEARS FOR WHICH EFFECTIVE.—An election under subsection
(a) shall be effective for the taxable year of the GSOC for which it is
made and for all succeeding taxable years of the GSOC, unless it is
terminated under subsection (f).
"(e) TAXABLE YEAR.—The taxable year of a GSOC shall end on
October 31 unless the Secretary consents to a different taxable year.".
"(f) TERMINATION.—The election of a GSOC under subsection (a)
shall terminate for any taxable year during which it ceases to be a
GSOC and for all succeeding taxable years. The election of a GSOC
under subsection (a) may be terminated at any other time with the
consent of the Secretary, effective for the first tgixable year with
respect to which the Secretary consents and for all succeeding
taxable years.
26 u s e 1393. "SEC. 1393. GSOC TAXABLE INCOME TAXED TO SHAREHOLDERS.
"(a) GENERAL RULE.—The taxable income of an electing GSOC for
any tsixable year shall be included in the gross income of the
shareholders of such GSOC in the manner and to the extent set forth
in this subsection.
"(1) AMOUNT INCLUDED IN GROSS INCOME.—Each shareholder of
^ an electing GSOC on any day of a taxable year of such GSOC
shall include in his gross income for the taxable year with or
within which the taxable year of the GSOC ends the amount he
would have received if, on each day of such taxable year, there
had been distributed pro rata to its shareholders by such GSOC
an amount equal to the taxable income of the GSOC for its
taxable year divided by the number of days in the GSOC's
taxable year.
"(2) TAXABLE INCOME DEFINED.—For purposes of this section,
the term 'taxable income' of a GSOC shall be determined without
regard to the deductions allowed by part VIII of subchapter B
26 use 248. (other than deductions allowed by section 248, relating to organi-
zational expenditures).
"(b) SPECIAL RULE FOR INVESTMENT CREDIT.—The investment credit
of an electing GSOC for any taxable year shall be allowed as a credit
to the shareholders of such corporation in the manner and to the
extent set forth in this subsection.
"(1) CREDIT.—There shall be apportioned among the sharehold-
ers a credit equal to the amount each shareholder would have
received if, on each day of such taxable year, there had been
distributed pro rata to the shareholders the electing GSOC's net
investment credit divided by the number of days in the GSOC's
taxable year.
"(2) NET INVESTMENT CREDIT.—For purposes of this paragraph
the term 'net investment credit' means the investment credit of
the electing GSOC for its taxable year less any tax from recom-
puting a prior year's investment credit in accordance with
26 use 47. section 47.
"(3) RECAPTURE.—There shall be apportioned among the share-
holders of a GSOC, in the manner described in paragraph (1), an
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2895
additional tax equal to the excess of any tax resulting from
recomputing a prior year's investment credit in accordance with
section 47 over the investment credit of the GSOC for its taxable 26 use 47.
year.
"SEC. 1394. RULES APPLICABLE TO DISTRIBUTIONS OF AN ELECTING 26 USC 1394.
GSOCs.
"(a) SHAREHOLDER INCOME ACCOUNT.—An electing GSOC shall
establish and maintain a shareholder income account which account
shall be—
"(1) increased at the close of the GSOCs taxable year by an
amount equal to the GSOC's taxable income for such year, and
"(2) decreased, but not below zero, on the first day of the
GSOC's taxable year by the amount of any GSOC distribution to
the shareholders of such GSOC made or treated as made during
the prior taxable year.
"Ob) TAXATION OF DISTRIBUTIONS.—Distributions by an electing
GSOC shall be treated as—
"(1) a distribution of previously taxed income to the extent
such distribution does not exceed the balance of the shareholder
income account as of the close of the taxable year of the GSOC,
and
"(2) a distribution to which section 301(a) applies but only to 26 USC 301.
the extent such distribution exceeds the balance of the share-
holder income account as of the close of the taxable year of the
GSOC.
"(c) DISTRIBUTIONS NOT TREATED AS A DIVIDEND.—Any amounts
includible in the gross income of any individual by reason of owner-
ship of stock in a GSOC shall not be considered as a dividend for
purposes of section 116. 26 USC 116.
"(d) REGULATIONS.—The Secretary shall have authority to pre-
scribe by regulation, rules for treatment of distributions in respect of
shares of stock of the GSOC that have been transferred during the
taxable year.".
"SEC. 1395. ADJUSTMENT TO BASIS OF STOCK OF SHAREHOLDERS. 26 USC 1395.
"The basis of a shareholder's stock in an electing GSOC shall be
increased by the amount includible in the gross income of such
shareholder under section 1393, but only to the extent to which such Ante, p. 2894.
amount is actually included in the gross income of such shareholder.
"SEC. 1396. MINIMUM DISTRIBUTIONS. 26 USC 1396.
"(a) GENERAL RULE.—A GSOC shall distribute at least 90 percent of
its taxable income for any taxable year by January 31 following the
close of such taxable year. Any distribution made on or before
January 31 shall be treated as made as of the close of the preceding
taxable year.
"(b) IMPOSITION OF TAX IN CASE OF FAILURE TO MAKE MINIMUM
DISTRIBUTIONS.—If a GSOC fails to make the minimum distribution
requirements described in subsection (a), there is hereby imposed a
tax equal to 20 percent of the excess of the amount required to be
distributed over the amount actually distributed.
"SEC. 1397. SPECIAL RULES APPLICABLE TO AN ELECTING GSOC. 26 USC 1397.
"(a) GENERAL RULE.—The current earnings and profits of an
electing GSOC as of the close of its taxable year shall not include the
amount of taxable income for such year which is required to be
92 STAT. 2896 PUBLIC LAW 95-600—NOV. 6, 1978
included in the gross income of the shareholders of such GSOC under
Ante, p. 2894. section 1393(a).
"(b) SPECIAL RULE FOR AUDIT ADJUSTMENTS.—
"(1) TAXABLE INCOME.—Taxable income of an electing GSOC
shall, in the year of final determination, be increased or
decreased, as the case might be, by any adjustment to taxable
income for a prior taxable year.
"(2) INVESTMENT CREDIT.—The net investment credit of an
electing GSOC shall, in the year of final determination, be
increased or decreased, as the case might be, by any adjustment
to the net investment credit for a prior taxable year.
"(3) METHOD OF MAKING ADJUSTMENTS.—An electing GSOC
shall include in gross income for the year of an adjustment the
amount described in paragraph (1) and shall take into account
the adjustment described in paragraph (2), and shall be liable for
payment of interest in the amount that would have been payable
26 use 6601. by the GSOC under section 6601 (relating to interest on under-
payment, nonpayment or extensions of time for payment, of tax)
26 use 6611. or receivable by the GSOC under section 6611 (relating to
interest on overpayments) if such GSOC had been a corporation
other than an electing GSOC."
(b) TECHNICAL AMENDMENTS.—
(1) NET OPERATING LOSS DEDUCTION.—Paragraph (1) of section
26 use 172. 172(b) (relating to net operating loss carrybacks and carryovers)
is amended by adding at the end thereof the following new
subparagraph:
"(H) In the case of an electing GSOC which has a net
operating loss for any taxable year such loss shall not be a
net operating loss carryback to any taxable year preceding
the year of such loss, but shall be a net operating loss
carryover to each of the 10 taxable years following the year
of such loss."
26 use 3402. (2) INCOME TAX COLLECTED AT SOURCE.—Section 3402 (relating
to income collected at source) is amended by adding at the end
thereof the following new subsection:
"(r) EXTENSION OF WITHHOLDING TO GSOC DISTRIBUTIONS.—
"(1) GENERAL RULE.—An electing GSOC making any distribu-
tion to its shareholders shall deduct and withhold from such
payment a tax in an amount equal to 25 percent of such payment.
"(2) COORDINATION WITH OTHER SECTIONS.—For purposes of
26 use 3403, sections 3403 and 3404 and for purposes of so much of subtitle F
3404. (except section 7205) as relates to this chapter, distributions of an
26 use 7205. electing GSOC to any shareholder which are subject to withhold-
ing shall be treated as if they were wages paid by an employer to
an employee."
26 use 1016. (3) ADJUSTMENTS TO BASIS.—Section 1016(a) (relating to adjust-
ments of basis) is amended by redesignating paragraph (23) as
(22) and by inserting after paragraph (20) the following new
paragraph:
Ante, p. 2895. "(21) to the extent provided in section 1395 in the case of stock
of shareholders of a general stock ownership corporation (as
Ante, p. 2892. defined in section 1391) which makes the election provided by
Ante, p. 2893. section 1392; and".
(4) RETURN OF GENERAL STOCK OWNERSHIP CORPORATION.—
26 use 6031. Subpart A of part III of subchapter A of chapter 61 (relating to
information returns) is amended by adding at the end thereof the
following new section:
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2897
"SEC. 6039B. RETURN OF GENERAL STOCK OWNERSHIP CORPORATION. 26 USC 6039B.
"Every general stock ownership corporation (as defined in section
1391) which makes the election provided by section 1392 shall make a 26 USC 1391,
return for each taxable year, stating specifically the items of its gross 1392.
income and the deductions allowable by subtitle A, the amount of
investment credit or additional tax, as the case may be, the names
and addresses of all persons owning stock in the corporation at any
time during the taxable year, the number of shares of stock owned by
each shareholder at all times during the taxable year, the amount of
money and other property distributed by the corporation during the
taxable year to each shareholder, the date of each such distribution,
and such other information, for the purpose of carrying out the
provisions of subchapter U of chapter 1, as the Secretary may by
regulation prescribe. Any return filed pursuant to this section shall,
for purposes of chapter 66 (relating to limitations), be treated as a 26 USC 6501 et
return filed by the corporation under section 6012. Eveiy GSOC shall 26 USC 6012.
file an annual report with the Secretary summarizing its operations
for such year."
(c) CLERICAL AMENDMENTS.—
(1) The table of subchapters for chapter 1 is amended by adding
at the end thereof the following:
"SUBCHAPTER U.—General stock ownership plans."
(2) The table of sections for subpart A of part III of subchapter
A of chapter 61 is amended by adding at the end thereof the
following:
"Sec. 6039B. Return of general stock ownership corporation."
(d) EFFECTIVE DATE.—The amendments made by this section shall ^6 USC 1391
apply with respect to corporations chartered after December 31,1978, "*^^^-
and before January 1,1984. s:
TITLE VII—TECHNICAL CORRECTIONS OF
THE TAX REFORM ACT OF 1976
SEC. 701. TECHNICAL AMENDMENTS TO INCOME TAX PROVISIONS AND
ADMINISTRATIVE PROVISIONS.
(a) AMENDMENTS RELATING TO RETENTION OF PRIOR LAW FOR
RETIREMENT INCOME CREDIT UNDER SECTION 37(e).— 26 USC 37.
(1) CLARIFICATION THAT SPOUSE UNDER AGE 65 MUST HAVE
PUBUC RETIREMENT SYSTEM INCOME.—Paragraph (2) of section
37(e) (relating to election of prior law with respect to public
retirement system income) is amended by striking out "who has
not attained age 65 before the close of the taxable year" and
inserting in lieu thereof "who has not attained age 65 before the
close of the taxable year (and whose gross income includes
income described in paragraph (4)(B))".
(2) CLARIFICATION THAT QUAUFYING SERVICES MUST HAVE BEEN
PERFORMED BY TAXPAYER OR SPOUSE.—Subparagraph (B) of sec-
tion 37(e)(4) (defining retirement income) is amended by inserting
"and who performed the services giving rise to the pension or
annuity (or is the spouse of the individuEil who performed the
services)" after "before the close of the taxable year".
(3) DISREGARD OF COMMUNITY PROPERTY LAWS.—Subsection (c)
of section 37 (relating to election of prior law with respect to
public retirement system income) is amended—
92 STAT. 2898 PUBLIC LAW 95-600—NOV. 6, 1978
(A) by redesignating paragraph (8) as paragraph (9) and by
inserting after paragraph (7) the following new paragraph:
"(8) COMMUNITY PROPERTY LAWS NOT APPLICABLE.—In the case
of a joint return, this subsection shall be applied without regard
to community property laws.",
(B) by striking out "paragraph (8)(A)" in paragraph (4)(B)
and inserting in lieu thereof "paragraph (9)(A)"; and
(C) by striking out "paragraph (8)(B)" in paragraph (5)(B)
and inserting in lieu thereof "paragraph (9)(B>".
26 u s e 37 note. (4) EFFECTIVE DATES.—
(A) The amendments made by paragraphs (1) and (2) shall
apply to taxable years beginning after December 31, 1975.
(B) The amendments made by paragraph (3) shall apply to
teixable years beginning after December 31,1977.
(b) AMENDMENTS RELATING TO THE MINIMUM TAX.—
26 u s e 57. (1) SPECIAL RULES FOR MINIMUM TAX I N THE CASE OF SUB-
CHAPTERS CORPORATIONS AND PERSONAL HOLDING COMPANIES.—
(A) Paragraph (1) of section 57(a) (relating to adjusted
itemized deductions) is amended by striking out "An
amount" and inserting in lieu thereof "In the case of an
individual, an amount".
(B) The last sentence of section 57(a) (relating to items of
tax preference) is amended by striking out "Paragraphs (1),
(3), and" and inserting in lieu thereof "Paragraphs (3) and".
26 use 58. (2) DIVISION OF $IO,OOO AMOUNT AMONG MEMBERS OP CON-
TROLLED GROUPS.—Subsection (b) of section 58 (relating to mem-
bers of controlled groups) is amended to read as follows:
"(b) MEMBERS OF CONTROLLED GROUPS.—In the case of a controlled
26 use 1563. group of corporations (as defined in section 1563(a)), the $10,000
26 use 56. amount specified in section 56 shall be divided among the component
members of such group in proportion to their respective regular tax
deductions (within the meaning of section 56(c)) for the taxable year."
(3) COMPUTATION OF ADJUSTED ITEMIZED DEDUCTIONS IN THE
26 use 57. CASE OF ESTATES AND TRUSTS.—Paragraph (2) of section 57(b)
(relating to computation of adjusted itemized deductions in the
case of estates and trusts) is amended to read as follows:
"(2) SPECIAL RULES FOR ESTATES AND TRUSTS.—
"(A) IN GENERAL.—In the case of an estate or trust, for
purposes of paragraph (1) of subsection (a), the amount of the
adjusted itemized deductions for any taxable year is the
amount by which the sum of the deductions for the taxable
year other than—
"(i) the deductions allowable in arriving at adjusted
gross income,
"(ii) the deduction for personal exemption provided by
26 use 642. section 642(b),
"(iii) the deduction for casualty losses described in
26 use 165. section 165(c)(3),
26 use 651. "(iv) the deductions allowable under section 651(a),
26 use 661, 661(a), or 691(c), and
691- "(v) the deductions allowable to a trust under section
26 use 642. 642(c) to the extent that a corresponding amount is
included in the gross income of the beneficiary under
26 use 662. section 662(a)(1) for the taxable year of the beneficiary
with which or within which the tEixable year of the
trusts ends,
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2899
exceeds 60 percent (but does not exceed 100 percent) of the
adjusted gross income of the estate or trust for the taxable
year.
"(B) DETERMINATION OF ADJUSTED GROSS INCOME,—For
purposes of this paragraph, the adjusted gross income of an
estate or trust shall be computed in the same manner as in
the case of an individual, except that—
"(i) the deductions for costs paid or incurred in connec-
tion with the administration of the estate or trust, and
"(ii) to the extent provided in subparagraph (C), the
deductions under section 642(c), 26 USC 642.
shall be treated as allowable in arriving at adjusted gross
income.
"(C) TREATMENT OF CERTAIN CHARITABLE CONTRIBUTIONS.—
For purposes of this paragraph, the following deductions
under section 642(c) (relating to deductions for amounts paid
or permanently set aside for charitable purposes) shall be
treated as deductions allowable in arriving at adjusted gross
income:
"(i) deductions allowable to an estate,
"(ii) deductions allowable to a trust all of the unex-
pired interests in which are devoted to one or more of
the purposes described in section 170(c)(2)(B), 26 USC 170.
"(iii) deductions allowable to a trust which is a pooled
income fund within the meaning of section 642(c)(5),
"(iv) deductions allowable to a trust which are attrib-
utable to transfers to the trust before January 1, 1977,
and
"(v) deductions allowable to a trust, all of the income
interest of which is devoted solely to one or more of the
purposes described in section 170(c)(2)(B), which are
attributable to transfers pursuant to a will or pursuant
to an inter vivos trust in which the grantor had the
power to revoke at the date of his death."
(4) SECTION 691(C) DEDUCTION NOT TAKEN INTO ACCOUNT FOR 26 USC 57.
DETERMINING ADJUSTED ITEMIZED DEDUCTIONS.—Paragraph (1) of
section 57(b) is amended by striking out "and" at the end of
subparagraph (C), by inserting "and" at the end of subparagraph
(D), and by inserting after subpar£igraph (D) the following new
subparagraph:
"(E) the deduction allowable under section 691(c),". 26 USC 691.
(5) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 57 note.
shall take effect as if included in the amendments made by
section 301 of the Tax Reform Act of 1976. 26 USC 301.
(c) SICK PAY.—
(1) IN GENERAL.—Section 105(d) is amended by striking out 26 USC 105.
paragraphs (4) and (6), by redesignating paragraph (5) as para-
graph (4) and paragraph (7) as paragraph (6), and by inserting
after paragraph (4) the following new paragraph:
"(5) SPECIAL RULES FOR MARRIED COUPLES.—
"(A) MARRIED COUPLE MUST FILE JOINT RETURN.—Except in
the case of a husband and wife who live apart at all times
during the taxable year, if the taxpayer is married at the
close of the taxable year, the exclusion provided by this
subsection shall be allowed only if the taxpayer and his
spouse file a joint return for the taxable year.
92 STAT. 2900 PUBLIC LAW 95-600—NOV. 6, 1978
"(B) APPLICATION OF PARAGRAPHS (2) AND (3).—In the case
of a joint return—
"(i) paragraph (2) shall be applied separately with
respect to each spouse, but
"(ii) paragraph (S) shall be applied with respect to
their combined adjusted gross income.
"(C) DETERMINATION OF MARITAL STATUS.—For purposes of
this subsection, marital status shall be determined under
26 use 143. section 143(a).
"(D) JOINT RETURN DEFINED.—For purposes of this subsec-
tion, the term 'joint return' means the joint return of a
26 use 6013. husband and wife made;under section 6013."
26 use 105 (2) CONFORMING AMENDMPNTS.-^
note. (A) Subsection (c)(3) of section 505 of the Tax Reform Act of
26 use 505. 1976 (relating to disability retirement) is amended by strik-
26 use 105. ing out "section 105(d)(5)" and inserting in lieu thereof
"section 105(d)(4)".
26 use 105 (B) Subsections (c) and (e)(1) of section 301 of the Tax
note. Reduction and Simplification Act of 1977 (relating to effec-
tive date of changes in the exclusion for sick pay) are each
26 u s e 105. amended by striking out "section 105(d)(7)" and inserting in
lieu thereof "section 105(d)(6)".
26 u s e 105 (3) EFFECTIVE DATE.—
note. (A) The amendments made by paragraphs (1) and (2)(A)
shall take effect as if included in section 105(d) of the
26 u s e 105. Internal Revenue Code of 1954 as such section was amended
26 u s e 505. by section 505(a) of the Tax Reform Act of 1976.
(B) The amendments made by paragraph (2)(B) shall take
effect as if included in section 301 of the Tax Reduction and
26 u s e 105 Simplification Act of 1977.
notes. (d) NET OPERATING LOSSES.—
26 u s e 172. (1) AMENDMENT OF SECTION 172(b)(1)(B).—The second sentence
of subparagraph (B) of section 1720b)(l) (relating to years to which
net operating losses may be carried) is amended by striking out
"and (F)" and inserting in lieu thereof "(F), and (G)'\
26 u s e 172 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
note. shall apply to losses incurred in taxable years ending after
December 31,1975.
26 u s e 189 (e) EFFECTIVE DATE FOR FISCAL YEAR TAXPAYERS FOR CONSTRUCTION
note. PERIOD INTEREST AND TAXES.—Paragraph (1) of section 201(c) of the
26 u s e 201. Tax Reform Act of 1976 is amended to read as follows:
"(1) in the case of nonresidential real property, if the construc-
tion period begins on or after the first day of the first taxable
year beginning after December 31,1975,".
(f) CLARIFICATION OF PROVISIONS PROVIDING TAX INCENTIVES TO
ENCOURAGE THE PRESERVATION OF HISTORIC STRUCTURES.—
(1) DEFINITION OF CERTIFIED HISTORIC STRUCTURES.—Subsection
26 u s e 191. (d) of section 191 (relating to amortization of certain rehabilita-
tion expenditures for certified historic structures) is amended by
redesignating paragraphs (2) and (3) as paragraphs (3) and (4),
respectively, and by striking out paragraph (1) and inserting in
lieu thereof the following new paragraphs:
"(1) CERTIFIED HISTORIC STRUCTURE.—The term 'certified his-
toric structure' means a building or structure which is of a
character subject to the allowance for depreciation provided in
26 u s e 167. section 167 and which—
"(A) is listed in the National Register, or
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2901
"(B) is located in a registered historic district and is
certified by the Secretary of the Interior to the Secretary as
being of historic significance to the district.
"(2) REGISTERED HISTORIC DISTRICT.—The term 'registered his-
toric district' means—
"(A) any district listed in the National Register, and
"(B) any district—
"(i) which is designated under a statute of the appro-
priate State or local government, if such statute is
certified by the Secretary of the Interior to the Secre-
tary as containing criteria which will substantially
achieve the purpose of preserving and rehabilitating
buildings of historic significance to the district, and
"(ii) which is certified by the Secretary of the Interior
to the Secretary as meeting substantially all of the
requirements for the listing of districts in the National
Register."
(2) AMENDMENT OF CROSS REFERENCES.—Subsection (g) of sec-
tion 191 (relating to cross references) is amended to read as 26 USC 191.
follows:
"(g) CROSS REFERENCES.—
"(1) For rules relating to the listing of buildings, structures, and his-
toric districts in the National Register, see the Act entitled 'An Act to es-
tablish a program for the preservation of additional historic properties
throughout the Nation, and for other purposes', approved October 15, 1966
(16 U.S.C. 470 et seq.).
"(2) For special rules with respect to certain gain derived from the dis-
position of property the adjusted basis of which is determined with regard
to this section, see sections 1245 and 1250."
(3) SPECIAL RULES FOR RECAPTURE OF AMORTIZATION DEDUC-
TION.—
(A) Paragraph (2) of section 1245(a) (relating to gain from 26 USC 1245.
dispositions of certain depreciable property) is amended—
(i) by striking out "190, or 191" the first place it
appears and inserting in lieu thereof "or 190" and
(ii) by striking out "190, or 191" the second and third
place it appears and inserting in lieu thereof "190, or (in
the case of property described in paragraph (3)(C)) 191".
(B) Subparagraph (D) of section 1245(a)(3) (relating to gain
from dispositions of certain depreciable property) is
amended by striking out "190, or 191" and inserting in lieu
thereof "or 190".
(C) Paragraph (3) of section 1250(b) (relating to depreci- 26 USC 1250.
ation adjustments) is amended by striking out "190 or 191"
and inserting in lieu thereof "or 190".
(D) Paragraph (2) of section 57(a) (relating to items of tax 26 USC 57.
preference) is amended by inserting "or 191" after "167(k)".
(E) Paragraph (4) of section 1250(b) (relating to definition
of additional depreciation) is amended—
(i) by inserting "or amortization" after "depreciation"
the second and third places it appears, and
(ii) by inserting "or 191" after "167(k)" each place it
appears.
(4) STRAIGHT LINE METHOD IN CERTAIN CASES.—Subsection (n) of
section 167 is amended to read as follows: 26 USC 167.
"(n) STRAIGHT LINE METHOD IN CERTAIN CASES.—
"(1) I N GENERAL.—In the case of any property in whole or in
part constructed, reconstructed, erected, or used on a site which
92 STAT. 2902 PUBLIC LAW 95-600—NOV. 6, 1978
was, on or after June 30, 1976, occupied by a certified historic
structure (or by any structure in a registered historic district)
which is demolished or substantially altered after such date—
"(A) subsections (b), (j), (k), and (1) shall not apply, and
"(B) the term 'reasonable allowance' as used in subsection
(a) means only an allowance computed under the straight
line method.
The preceding sentence shall not apply if the last substantial
alteration of the structure is a certified rehabilitation.
"(2) EXCEPTIONS.—The limitations imposed by this subsection
shall not apply—
"(A) to personal property, and
"(B) in the case of demolition or substantial alteration of a
structure located in a registered historic district, if—
"(i) such structure was not a certified historic
structure,
"(ii) the Secretary of the Interior certified to the
Secretary that such structure is not of historic signifi-
cance to the district, and
"(iii) if the certification referred to in clause (ii) occurs
after the beginning of the demolition or substantial
alteration of such structure, the taxpayer certifies to the
Secretary that, at the beginning of such demolition or
substantial alteration, he in good faith was not aware of
the requirements of clause (ii).
"(3) DEFINITIONS.—For purposes of this subsection, the terms
'certified historic structure', 'registered historic district', and
'certified rehabilitation' have the respective meanings given
26 use 191. such terms by section 191(d)."
(5) DEMOLITION OF CERTAIN HISTORIC STRUCTURES.—Subsection
(b) of section 280B (relating to special rule for registered historic
districts) is amended to read as follows:
26 u s e 280B. "(b) SPECIAL RULE FOR REGISTERED HISTORIC DISTRICTS.—For pur-
poses of this section, any building or other structure located in a
26 use 191. registered historic district (as defined in section 191(d)(2)) shall be
treated as a certified historic structure unless the Secretary of the
Interior has certified that such structure is not a certified historic
structure, and that such structure is not of historic significance to the
district, and if such certification occurs after the beginning of the
demolition of such structure, the taxpayer has certified to the
Secretary that, at the time of such demolition, he in good faith was
not aware of the certification requirement by the Secretary of the
Interior."
(6) SUBSTANTIALLY REHABIUTATED HISTORIC PROPERTY.—
26 use 167. (A) Paragraph (1) of section 167(o) (relating to substan-
tially rehabilitated historic property) is amended by insert-
ing "(other than property with respect to which an amortiza-
tion deduction has been allowed to the taxpayer under
26 use 191. section 191)" after "substantially rehabilitated historic
property".
26 use 167. (B) Paragraph (2) of section 167(o) is amended by striking
26 use 191. out "section 191(d)(3)" and inserting in lieu thereof "section
191(d)(4)".
(7) AMORTIZATION ALLOWABLE TO PERSONS WITH CERTAIN LEASE
26 use 191. INTERESTS.—Section 191(f) (relating to treatment of life tenants
and remaindermen) is amended to read as follows:
"(f) SPECDU. RULES FOR CERTAIN INTERESTS.—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2903
"(1) LIFE TENANT AND REMAINDERMAN.—In the case of property
held by one person for life with remainder to another person, the
deduction under this section shall be computed as if the life
tenant were the absolute owner of the property and shall be
allowable to the life tenant.
"(2) CERTAIN LESSEES.—
"(A) IN GENERAL.—In the case of a lessee of a certified
historic structure who has expended amounts in connection
with the certified rehabilitation of such structure which are
properly chargeable to capital account, the deduction under
this section shall be allowable to such lessee with respect to
such amounts.
"(B) AMORTIZABLE BASIS.—For purposes of subsection (a),
the amortizable basis of such lessee shall not exceed the sum
of the amounts described in subparagraph (A).
"(C) LIMITATION.—Subparagraph (A) shall apply only if on
the date of the certified rehabilitation is completed, the
remaining term of the lease (determined without regard to
any renewal periods) extends—
"(i) beyond the last day of the useful life (determined
without regard to this section) of the improvements for
which the amounts described in subparagraph (A) were
expended, and
"(ii) for not less than 30 years.".
(8) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 191
shall take effect as if included in the respective provisions of the "ote.
Internal Revenue Code of 1954 to which such amendments relate,
as such provision were added to such Code, or amended, by
section 2124 of the Tax Reform Act of 1976. 26 USC 191.
(g) FOREIGN CONVENTIONS.—
(1) DEDUCTIONS NOT DISALLOWED TO EMPLOYER WHERE EMPLOYEE
INCLUDES AMOUNTS IN GROSS INCOME.—Subparagraph (D) of sec-
tion 274(h)(6) (relating to application of subsection to employer as 26 USC 274.
well as to traveler) is amended to read as follows:
"(D) SUBSECTION TO APPLY TO EMPLOYER AS WELL AS TO
TRAVELER.—
"(i) Except as provided in clause (ii), this subsection
shall apply to deductions otherwise allowable under
section 162 or 212 to any person, whether or not such 26 USC 162,
person is the individual attending the foreign conven- 212.
tion. For the purposes of the preceding sentence such
person shall be treated, with respect to each individual,
as having selected the same 2 foreign conventions as
were selected by such individual.
"(ii) This subsection shall not deny a deduction to any
person other than the individual attending the foreign
convention with respect to any amount paid by such
person to or on behalf of another person if includible in
the gross income of such other person. The preceding
sentence shall not apply if such amount is required to be
included in any information return filed by such person
under part III of subchapter A of chapter 61 and is not so 26 USC 6031 et
included." seq.
(2) INDIVIDUALS RESIDING IN FOREIGN COUNTRIES.—Section
274(h)(6) is amended by adding at the end thereof the following 26 USC 274.
new subparagraph:
92 STAT. 2904 PUBLIC LAW 95-600—NOV. 6, 1978
"(E) INDIVIDUALS RESIDING IN FOREIGN COUNTRIES.—For
purposes of this subsection, in the case of an individual
citizen of the United States who establishes to the satisfac-
tion of the Secretary that he was a bona fide resident of a
foreign country at the time that he attended a convention in
such foreign country, such individual's attendance at such
convention shall not be considered as attendance at a foreign
convention.".
26 u s e 274. (3) TECHNICAL AMENDMENT.—The first sentence of section
274(h)(3) is amended by striking out "more than, one-half and
inserting in lieu thereof "at least one-half.
26 u s e 274 (4) EFFECTIVE DATE.—The amendments made by this subsection
note. shall apply to conventions beginning after December 31, 1976.
(h) RENTAL OF FORMER PRINCIPAL RESIDENCE.—
26 u s e 280A. (1) IN GENERAL.—Subsection (d) of section 280A (relating to use
of residence for personal purposes) is amended by adding at the
end thereof the following new paragraph:
"(3) RENTAL OF PRINCIPAL RESIDENCE.—
"(A) IN GENERAL.—For purposes of applying subsection
(c)(5) to deductions allocable to a qualified rental period, a
taxpayer shall not be considered to have used a dwelling unit
for personal purposes for any day during the taxable year
which occurs before or after a qualified rental period
described in subparagraph (B)(i), or before a qualified rental
period described in subparagraph (B)(ii), if with respect to
such day such unit constitutes the principal residence
26 u s e 1034. (within the meaning of section 1034) of the taxpayer.
"(B) QUALIFIED RENTAL PERIOD.—For purposes of subpara-
graph (A), the term 'qualified rental period' means a con-
secutive period of—
"(i) 12 or more months which begins or ends in such
taxable year, or
"(ii) less than 12 months which begins in such taxable
year and at the end of which such dwelling unit is sold or
exchanged, and
for which such unit is rented to a person other than a
26 u s e 267. member of the family (as defined in section 267(c)(4)) of the
taxpayer, or is held for rental, at a fair rental."
26 u s e 280A (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
note. shall take effect as if included in section 280A of the Internal
26 u s e 280A. Revenue Code of 1954, as such provision was added to such Code
26 u s e 601. by section 601(a) of the Tax Reform Act of 1976.
26 u s e 337. (i) CLARIFICATION OF LAST SENTENCE OF SECTION 337(c)(2).—
(1) IN GENERAL.—Subsection (c) of section 337 (relating to
limitations on application of section 337) is amended by striking
out the last sentence of paragraph (2) and by adding at the end of
such subsection the following new paragraph:
"(3) SPECIAL RULE FOR AFFILIATED GROUP.—
"(A) IN GENERAL.—Paragraph (2) shall not apply to a sale
or exchange by a corporation (hereinafter in this paragraph
referred to as the 'selling corporation') if—
"(i) within the 12-month period beginning on the date
of the adoption of a plan of complete liquidation by the
selling corporation, the selling corporation and each
distributee corporation is completely liquidated, and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2905
"(ii) none of the complete liquidations referred to in
clause (i) is a liquidation with respect to which section
333 applies. 26 USC 333.
"(B) DEFINITIONS.—For purposes of subparagraph (A)—
"(i) The term 'distributee corporation' means a corpo-
ration in the chain of includible corporations to which
the selling corporation or a corporation above the selling
corporation in such chain makes a distribution in com-
plete liquidation within the 12-month period referred to
in subparagraph (A)(i).
"(ii) The term 'chain of includible corporation' in-
cludes, in the case of any distribution, any corporation
which (at the time of such distribution) is in a chain of
includible corporations for purposes of section 1504(a) 26 USC 1504.
(determined without regard to the exceptions contained
in section 1504(b)). Such term includes, where appropri-
ate, the common parent corporation."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 337
shall apply to sales or exchanges made pursuant to a plan of note.
complete liquidation adopted after December 31,1975.
(j) CERTAIN TRANSACTIONS INVOLVING 2 OR MORE INVESTMENT
COMPANIES.—
(1) AMENDMENTS OF SECTION 368(a)(2)(F).— 26 USC 368.
(A) The first sentence of clause (iii) of section 368(a)(2)(F) is
amended—
(i) by striking out "more than 50 percent" and insert-
ing in lieu thereof "50 percent or more"; and
(ii) by striking out "more than 80 percent" and insert-
ing in lieu thereof "80 percent or more."
(B) The first sentence of clause (vi) of section 368(a)(2)(F) is
amended by striking out "is not diversified within the
meaning" and inserting in lieu thereof "does not meet the
requirements".
(C) The second sentence of such clause (vi) is amended to
read as follows: "If such investment company acquires stock
of another corporation in a reorganization described in
section 368(a)(1)(B), clause (i) shall be applied to the share-
holders of such investment company as though they had
exchanged with such other corporation all of their stock in
such company for stock having a fair market value equal to
the fair market value of their stock of such investment
company immediately after the exchange."
(D) Subparagraph (F) of section 368(a)(2) is amended by
adding at the end thereof the following new clauses:
"(vii) For purposes of clauses (ii) and (iii), the term
'securities' includes obligations of State and local gov-
ernments, commodity futures contracts, shares of regu-
lated investment companies and real estate investment
trusts, and other investments constituting a security
within the meaning of the Investment Company Act of
1940(15U.S.C.80a-2(36)).
"(viii) In applying paragraph (3) of section 267(b) in 26 USC 267.
respect of any transaction to which this subparagraph
applies, the reference to a personal holding company in
such paragraph (3) shall be treated as including a
reference to an investment company and the determina-
tion of whether a corporation is an investment company
39-194 O—80—pt. 3 18 : QL3
92 STAT. 2906 PUBLIC LAW 95-600—NOV. 6, 1978
'• shall be made as of the time immediately before the
transaction instead of with respect to the taxable year
referred to in such paragraph (3)."
26 use 368 (2) EFFECTIVE DATES.—
"°*^- (A) Except as provided in subparagraphs (B) and (C),
the amendments made by paragraph (1) shall apply as if
26 use 368. included in section 368(a)(2)(F) of the Internal Revenue Code
of 1954 as added by section 2131(a) of the Tax Reform Act of
1976.
(B) Clause (viii) of section 368(a)(2)(F) of the Internal
Revenue Code of 1954 (as added by paragraph (1)) shall apply
only with respect to losses sustained after September 26,
1977.
*• ; (C) Clause (vii) of section 368(a)(2)(F) of the Internal Reve-
nue Code of 1954 (as added by paragraph (1)) shall apply only
with respect to transfers made after September 26, 1977.
(k) AT RISK PROVISIONS.—
26 use 465 (1) CLERICAL AMENDMENT TO EFFECTIVE DATE.—Subparagraph
note. (A) of section 204(c)(3) of the Tax Reform Act of 1976 is amended
by striking out "section 465(c)(1)(B)" and inserting in lieu thereof
"section 465(c)(1)(C)".
26 use 465. (2) CLARIFICATION OF SECTION 465(d).—Subsection (d) of section
V 465 (defining loss for purposes of the at risk provisions) is
amended by striking out ' (determined without regard to this
section)" and inserting in lieu thereof "(determined without
regard to the first sentence of subsection (a))".
26 use 465 (3) EFFECTIVE DATE.—The amendments made by this subsection
note. shall take effect on October 4,1976.
(1) AMENDMENTS RELATING TO USE OF ACCRUAL ACCOUNTING FOR
FARMING.—
(1) AUTOMATIC IO-YEAR ADJUSTMENT PERIOD FOR FARMING COR-
PORATIONS REQUIRED TO USE ACCRUAL ACCOUNTING.—Paragraph
26 use 447. (3) of section 447(f) (relating to coordination with section 481) is
amended—
(A) by striking out "(except as otherwise provided in such
regulations)", and
(B) by inserting "(or the remaining taxable years where
there is a stated future life of less than 10 taxable years)"
after "10 taxable years".
26 use 447 (2) AUTOMATIC IO-YEAR ADJUSTMENT FOR FARMING SYNDICATES
note. CHANGING TO ACCRUAL ACCOUNTING.—If—
(A) a farming syndicate (within the meaning of section
26 use 464. 464(c) of the Internal Revenue Code of 1954) was in existence
on December 31,1975, and
(B) such syndicate elects an accrual method of account-
ing (including the capitalization of preproductive period
26 use 447. expenses described in section 447(b) of such Code) for a
taxable year beginning before January 1,1979,
then such election shall be treated as having been made with the
consent of the Secretary of the Treasury or his delegate and,
under regulations prescribed by the Secretary of the Treasury or
his delegate, the net amount of the adjustments required by
26 use 481. section 481(a) of such Code to be taken into account by the
taxpayer in computing taxable income shall be taken into
account in each of the 10 taxable years (or the remaining taxable
years where there is a stated future life of less than 10 taxable
years) beginning with the year of change.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2907
(3) EXTENDING FAMILY ATTRIBUTION TO SPOUSE IN THE FARMING
SYNDICATE RULES.—
(A) Subparagraph (E) of section 464(c)(2) (defining farming 26 use 464.
syndicate) is amended by striking out "(within the meaning
of section 267(c)(4))" and inserting in lieu thereof "(or a 26 use 267.
spouse of any such member)".
(B) Paragraph (2) of section 464(c) is amended by adding at
the end thereof the following new sentence: "For purposes of
subparagraph (E), the term 'family' has the meaning given
to such term by section 267(c)(4)."
(4) EFFECTIVE DATE.—The amendment made by paragraphs (1) 26 use 447
and (3) shall take effect as if included in section 447 or 464 (as the "^*^;cr AA?
case may be) of the Internal Revenue (Hode of 1954 at the time of i^^ '
the enactment of such sections.
(m) EXTENSION OF CERTAIN PROVISIONS TO FOREIGN PERSONAL
HOLDING COMPANIES.—
(1) SECTION 189.—Subsection (a) of section 189 (relating to 26 use 189.
amortization of real property construction period interest and
taxes) is amended—
(A) by striking out "an electing small business corporation
(within the meaning of section 1371(b)), or personal holding 26 use 1371.
company (within the meaning of section 542)," ; and 26 use 542.
(B) by adding at the end thereof the following new sen-
tence: "For purposes of this section, an electing small busi-
ness corporation (as defined in section 1371(b)), a personal
holding company (as defined in section 542), and a foreign
personal holding company (as defined in section 552) shall be 26 use 552.
treated as an individual."
(2) SECTION 280.—Subsection (a) of section 280 (relating to 26 use 280.
certain expenditures incurred in production of films, books,
records, or similar property) is amended—
(A) by striking out "Except in the case of a corporation
(other than an electing small business corporation (as
defined in section 1371(b)) or a personal holding company (as
defined in section 542) and except" and inserting in lieu
thereof "In the case of an individual, except"; and
(B) by adding at the end thereof the following new sen-
tence: "For purposes of this section, an electing small busi-
ness corporation (as defined in section 1371(b)), a personal
holding company (as defined in section 542), and a foreign
personal holding company (as defined in section 552) shall be
treated as an individual."
(3) EFFECTIVE DATES.—
(A) The amendments made by paragraph (1) shall take 26 use 189
effect as if included in the amendment made by section "ote.
201(a) of the Tax Reform Act of 1976. 26 use 189.
(B) The amendments made by paragraph (2) shall take 26 use 280
note.
effect as if included in the amendment made by section
210(a) of the Tax Reform Act of 1976.
(n) DEFINITION OF CONDOMINIUM MANAGEMENT ASSOCIATION.—
(1) I N GENERAL.—Paragraph (2) of section 528(c) (defining 26 use 528.
condominium management association) is amended by striking
out "as residences" and inserting in lieu thereof "by individuals
for residences".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 528
shall apply to taxable years beginning after December 31, 1973. note.
(o) DEFINITION OF PERSONAL HOLDING COMPANY.—
92 STAT. 2908 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 542 (1) IN GENERAL.—The last sentence of section 542(a)(2) of the
note. Internal Revenue Code of 1954 (relating to stock ownership
26 use 542. requirement) shall not apply in the case of an organization or
trust organized or created before July 1,1950, if at all times on or
after July 1, 1950, and before the close of the t£ixable year such
organization or trust has owned all of the common stock and at
least 80 percent of the total number of shares of all other classes
of stock of the corporation.
26 use 542 (2) EFFECTIVE DATE.—The provisions of paragraph (1) shall
note. apply with respect to taxable years beginning after December 31,
1976.
(p) SPECIAL RULE FOR GAIN ON PROPERTY TRANSFERRED TO TRUST AT
LESS THAN FAIR MARKET VALUE.—
(1) ADDITIONAL TAX TO APPLY ONLY TO RECOGNIZED GAINS.—
(A) IN GENERAL.—Subsections (a)(1), (a)(2), and (b)(1) of
26 use 644. section 644 (relating to special rule for gain on property
transferred to trust at less than fair market value) are each
amended by striking out "gain realized" each place it
appears and inserting in lieu thereof "gain recognized".
(B) SPECIAL RULE FOR SUBSTITUTED BASIS PROPERTY.—Sub-
section (d) of section 644 (relating to special rule for short
sales) is amended to read as follows:
"(d) SPECIAL RULES.—
"(1) SHORT SALES.—If the trust sells the property referred to in
subsection (a) in a short sale within the 2-year period referred to
in such subsection, such 2-year period shall be extended to the
date of the closing of such short sale.
"(2) SUBSTITUTED BASIS PROPERTY.—For purposes of this section,
in the case of any property held by the trust which has a basis
determined in whole or in part by reference to the basis of any
other property which was transferred to the trust—
"(A) the initial transfer of such property in trust by the
transferor shall be treated as having occurred on the date of
the initial transfer in trust of such other property,
"(B) subsections (a)(1)(B) and (b)(2) shall be applied by
taking into account the fair market value and the adjusted
basis of such other property, and
"(C) the amount determined under subsection (b)(2) with
respect to such other property shall be allocated (under
regulations prescribed by the Secretary) among such other
property and all properties held by the trust which have a
basis determined in whole or in part by reference to the basis
of such other property.''
(2) TREATMENT OF NET OPERATING LOSSES, CAPITAL LOSSES, ETC.,
WHICH MAY AFFECT TRANSFEROR'S TAX IN OTHER YEARS.—Section
644(a)(2) (relating to additional tax on gain on property trans-
. ferred to trust at less than fair market vsilue) is amended by
adding at the end thereof the following new sentence: "The
determination of teix under clause (i) of subparagraph (A) shall be
made by not taking into account any carryback, and by not
taking into account any loss or deduction to the extent that such
loss or deduction may be carried by the transferor to any other
tsixable year."
(3) TECHNICAL AMENDMENT.—Paragraph (1) of section 644(f) is
amended by striking out "subsection (a)" and inserting in lieu
thereof "subsection (a) (other than the 2-year requirement of
paragraph (1)(A) thereof)".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2909
(4) CONFORMING AMENDMENT TO REVISION OF SECTION 644.— 26 use 644
Section 1402(b)(1) of the Tax Reform Act of 1976 (relating to "ote.
holding period for long-term capital gains treatment) is amended
by striking out subparagraph (K) thereof.
(5) EFFECTIVE DATES.— 26 USC 644
(A) Except as provided in subparagraph (B), the amend- "o*^-
ment made by this subsection shall apply to transfers in
trust made after May 21,1976.
(B) The amendment made by paragraph (4) shall take
effect on October 4,1976.
(q) ALLOWANCE OF FOREIGN TAX CREDIT FOR ACCUMULATION DISTRI-
BUTIONS.—
(1) SPECIAL RULES FOR FOREIGN TRUST.—
(A) Subsection (d) of section 665 is amended to read as 26 USC 665.
follows:
"(d) TAXES IMPOSED ON THE TRUST.—For purposes of this subpart—
"(1) IN GENERAL.—The term 'taxes imposed on the trust' means
the amount of the taxes which are imposed for any taxable year ^
of the trust under this chapter (without regard to this subpart or
subpart A of part IV of subchapter A) and which, under regula-
tions prescribed by the Secretary, are properly allocable to the
undistributed portions of distributable net income and gains in
excess of losses from sales or exchanges of capital assets. The
amount determined in the preceding sentence shall be reduced
by any amount of such taxes deemed distributed under section
666 (b) and (c) or 669 (d) and (e) to any beneficiary. 26 USC 666,
"(2) FOREIGN TRUSTS.—In the case of any foreign trust, the term 669.
'taxes imposed on the trust' includes the amount, reduced as
provided in the last sentence of paragraph (1), of any income, war
profits, and excess profits taxes imposed by any foreign country
or possession of the United States on such foreign trust which, as
determined under paragraph (1), are so properly allocable."
(B) Section 667 is amended by adding at the end thereof 26 USC 667.
the following new subsection:
"(d) SPECIAL RULES FOR FOREIGN TRUST.—
"(1) FOREIGN TAX DEEMED PAID BY BENEFICIARY.—
"(A) I N GENERAL.—In determining the increase in tax
under subsection (b)(1)(D) for any computation year, the
taxes described in section 665(d)(2) which are deemed distrib-
uted under section 666 (b) or (c) and added under subsection
(b)(1)(C) to the taxable income of the beneficiary for any
computation year shall, except as provided in subparagraphs
(B) and (C), be treated as a credit against the increase in tax
for such computation year under subsection (b)(1)(D).
"(B) DEDUCTION IN LIEU OF CREDIT.—If the beneficiary did
not choose the benefits of subpart A of part III of subchapter
N with respect to the computation year, the beneficiary may
in lieu of treating the amounts described in subparagraph
(A) (without regard to subparagraph (O) as a credit may
treat such amounts as a deduction in computing the benefi-
ciary's taxable income under subsection (b)(1)(C) for the
computation year.
"(C) LIMITATION ON CREDIT; RETENTION OF CHARACTER.—
"(i) LIMITATION ON CREDIT.—For purposes of determin-
ing under subparagraph (A) the amount treated as a
credit for any computation year, the limitations under
subpart A of part III of subchapter N shall be applied
92 STAT. 2910 PUBLIC LAW 95-600—NOV. 6, 1978
V'iy
separately with respect to amounts added under subsec-
tion (bXlXC) to the tsixable income of the beneficiary for
such computation year. For purposes of computing the
, , , increase in tax under subsection (b)(1)(D) for any compu-
tation year for which the beneficiary did not choose the
benefits of subpart A of part III of subchapter N, the
beneficiary shall be treated as having chosen such
benefits for such computation year.
"(ii) RETENTION OF CHARACTER.—The items of income,
deduction, and credit of the Trust shall retain their
26 use 904. '* character (subject to the application of section 904(f)(5))
to the extent necessary to apply this paragraph.
"(D) COMPUTATION YEAR.—For purposes of this paragraph,
" ^' >» ' the term 'computation year' means any of the three taxable
years remaining after application of subsection (b)(1)(B).".
26 use 667. (C) The last sentence of section 667(b)(1) is amended by
inserting "(other than the amount of taxes described in
Ante, p. 2909. section 665(d)(2))" after "taxes".
26 use 904. (2) RECAPTURE OF OVERALL FOREIGN LOSS.—Section 904(f) is
amended by adding at the end thereof the following new para-
graph:
"(5) ACCUMULATION DISTRIBUTIONS OF FOREIGN TRUST.—For
purposes of this chapter, in the case of amounts of income from
sources without the United States which are treated under
26 use 666. section 666 (without regard to subsections (b) and (c) thereof if the
taxpayer chose to take a deduction with respect to the amounts
26 use 667. described in such subsections under section 667(d)(1)(B)) as
having been distributed by a foreign trust in a preceding taxable
year, that portion of such amounts equal to the amount of any
overall foreign loss sustained by the beneficiary in a year prior to
the taxable year of the beneficiary in which such distribution is
. received from the trust shall be treated as income from sources
' within the United States (and not income from sources without
the United States) to the extent that such loss was not used under
this subsection in prior taxable years, or in the current taxable
year, against other income of the beneficiary.".
(3) EFFECTIVE DATES.—
26 use 665 (A) The amendments made by paragraph (1) shall apply to
note. distributions made in taxable years beginning after Decem-
ber 31,1975.
26 use 904 (B) The amendments made by paragraph (2) shall take
note. effect as if included in section 904(6 of the Internal Revenue
26 use 904. Code of 1954, as such provision was added to such Code by
26 use 904. section 1032(a) of the Tax Reform Act of 1976.
(r) RETENTION OF CHARACTER OF AMOUNTS DISTRIBUTED FROM
ACCUMULATION TRUST TO NONRESIDENT ALIENS AND FOREIGN CORPO-
RATIONS.—
26 use 667. (1) IN GENERAL.—Section 667 (relating to treatment of amounts
deemed distributed by trust in preceding years) is amended by
adding at the end thereof the following new subsection:
"(e) RETENTION OF CHARACTER OF AMOUNTS DISTRIBUTED FROM
ACCUMULATION TRUST TO NONRESIDENT ALIENS AND FOREIGN CORPO-
RATIONS.—In the case of a distribution from a trust to a nonresident
alien individual or to a foreign corporation, the first sentence of
subsection (a) shall be applied as if the reference to the determination
26 use 662. of character under section 662(b) applied to all amounts instead of
just to tax-exempt interest."
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2911
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 667
shall apply to distributions made in taxable years beginning "^te.
after December 31,1975.
(s) EXEMPT INTEREST DIVIDENDS OF REGULATED INVESTMENT COMPA-
NIES.—
(1) TREATMENT OF TAX-EXEMPT INTEREST FOR PURPOSES OF THE
90-PERCENT AND 30-PERCENT TESTS.—Subsection (b) of section 851 26 USC 851.
(relating to limitations on the definition of regulated investment
company) is amended by adding at the end thereof the following
new sentence: "For purposes of paragraphs (2) and (3), amounts
excludable from gross income under section 103(a)(1) shall be 26 USC 103.
treated as included in gross income."
(2) LOSSES ATTRIBUTABLE TO TAX-EXEMPT INTEREST WHERE STOCK
IS HELD LESS THAN 31 DAYS.—Paragraph (4) of section 852(b) 26 USC 852.
(relating to loss on sale or exchange of stock held less than 31
days) is amended to read as follows:
"(4) Loss ON SALE OR EXCHANGE OF STOCK HELD LESS THAN 31
DAYS.—
"(A) Loss ATTRIBUTABLE TO CAPITAL GAIN DIVIDEND.—If—
"(i) under subparagraph (B) or (D) of paragraph (3) a
shareholder of a regulated investment company is
required, with respect to any share, to treat any amount
as a long-term capital gain, and
"(ii) such share is held by the taxpayer for less than
31 days,
then any loss (to the extent not disallowed under subpara-
graph (B)) on the sale or exchange of such share shall, to the
extent of the amount described in clause (i), be treated as a
long-term capital loss.
"(B) L o s s ATTRIBUTABLE TO EXEMPT-INTEREST DIVIDEND.—
If—
"(i) a shareholder of a regulated investment company
receives an exempt-interest dividend with respect to any
share, and
"(ii) such share is held by the taxpayer for less than 31
days,
then any loss on the sale or exchange of such share shall, to
the extent of the amount of such exempt-interest dividend,
be disallowed.
"(C) DETERMINATION OF HOLDING PERIODS.—For purposes
of this paragraph, the rules of section 246(c)(3) shall apply in 26 USC 246.
determining whether any share of stock .has been held for
less than 31 days; except that '30 days' shall be substituted
for the number of days specified in subparagraph (B) of
section 246(C)(3)."
(3) EFFECTIVE DATE.—The amendments made by this section 26 USC 851
shall apply to taxable years beginning after December 31, 1975. note.
(t) AMENDMENTS RELATING TO REAL ESTATE INVESTMENT TRUSTS.—
(1) ANNUAL ACCOUNTING PERIOD.—Section 859 (relating to 26 USC 859.
adoption of annual accounting period), as redesignated by the
Act, is further amended to read as follows:
"SEC. 859. ADOPTION OF ANNUAL ACCOUNTING PERIOD.
"For purposes of this subtitle—
"(1) a real estate investment trust shall not change to any
accounting period other than the calendar year, and
92 STAT. 2912 PUBLIC LAW 95-600—NOV. 6, 1978
"(2) a corporation, trust, or association may not elect to be a
real estate investment trust for any taxable year beginning after
October 4,1976, unless its accounting period is the calendar year.
Paragraph (2) shall not apply to a corporation, trust, or association
which was considered to be a real estate investment trust for any
taxable year beginning on or before October 4,1976."
26 use 856. (2) AMENDMENT OF SECTION 856(C)(3)(D).—Subparagraph (D) of
section 856(c)(3) is amended by inserting "(other than gain from
prohibited transactions)" after "and gain",
(3) EXCISE TAX ON REIT UNDISTRIBUTED INCOME.—
26 use 6501. (A) Paragraph (3) of section 6501(e) (relating to limitations
on assessment and collection) is amended by striking out "or
43" and inserting in lieu thereof "43, or 44".
26 use 275. (B) Subsection (b) of section 1605 of the Tax Reform Act of
1976 (relating to technical amendments) is amended by
striking out paragraph (1) thereof.
26 use 6212. (C) Subparagraph (D) of section 1605(b)(5) of the Tax
Reform Act of 1976 is amended to read as follows:
26 use 4971. "(D) by striking out 'of chapter 43 tax for the same taxable
years,' in subsection (c)(1) and inserting in lieu thereof 'of
26 use 4971, chapter 43 tax for the same taxable year, of chapter 44 tax
4'981. for the same teixable year,'."
(4) CORRECTION OF CROSS REFERENCE.—Subparagraph (B) of
26 use 859. section 859(b)(2) is amended by striking out "section 6601(c)" and
inserting in lieu thereof "section 6601(b)".
26 use 859 (5) EFFECTIVE DATE.—The amendments made by this subsection
note. shall take effect on October 4,1976.
(u) AMENDMENTS RELATING TO TREATMENT OF FOREIGN INCOME.—
(1) FOREIGN TAX CREDITS NOT DISALLOWED ON CERTAIN DISTRIBU-
TIONS MADE BY POSSESSIONS CORPORATIONS.—
26 use 901. (A) IN GENERAL.—Paragraph (1) of section 901(g) (relating
to certain taxes paid with respect to distributions from
possessions corporations) is amended to read as follows:
"(1) I N GENERAL.—For purposes of this chapter, any tax of a
foreign country or possession of the United States which is paid
or accrued with respect to any distribution from a corporation—
"(A) to the extent that such distribution is attributable to
periods during which such corporation is a possessions
corporation, and
"(B) (i) if a dividends received deduction is allowable with
respect to such distribution under part VIII of subchapter B,
•:••::: '.jri-'- o r
"(ii) to the extent that such distribution is received in
connection with a liquidation or other transaction with
respect to which gain or loss is not recognized,
shall not be treated as income, war profits, or excess profits taxes
paid or accrued to a foreign country or possession of the United
States, and no deduction shall be allowed under this title with
respect to any amount so paid or accrued."
(B) DEFINITION OF POSSESSIONS CORPORATION.—Paragraph
(2) of section 901(g) (defining possessions corporation) is
amended—
26 use 931. (i) by striking out "or during which section 931" and
inserting in lieu thereof ", during which section 931",
and
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2913
(ii) by inserting before the period at the end thereof
the following: ", or during which section 957(c) applied
to such corporation".
(C) EFFECTIVE DATES.—The amendment made by subpara- 26 use 901
graph (A) shall apply as if included in section 901(g) of the note.
Internal Revenue Code of 1954 as added by section 1051(d)(2) 26 use 901.
of the Tax Reform Act of 1976. The amendments made by
subparagraph (B) shall apply to distributions made after the
date of the enactment of this Act in taxable years ending
after such date.
(2) FOREIGN TAX CREDIT ADJUSTMENTS FOR CAPITAL GAINS.— 26 use 904
(A) IN GENERAL.—Paragraph (2) of section 904(b) (relating
to treatment of capital gains for purposes of the foreign tax
credit limitation) is amended by striking out "For purposes
of subsection (a)—" and inserting in lieu thereof "For pur-
poses of this section—".
(B) SOURCE RULE.—Subparagraph (C) of section 904(b)(3) is
amended by striking out "For purposes of this paragraph,
there" and inserting in lieu thereof There".
(C) SOURCE RULE FOR LIQUIDATIONS OF CERTAIN FOREIGN
CORPORATIONS.—Paragraph (3) of section 904(b) (relating to
source rules for gain from the sale of certain personal
property) is amended by redesignating subparagraph (D) as
subparagraph (E) and by inserting after subparagraph (C)
the following new subparagraph:
"(D) GAIN FROM LIQUIDATION OF CERTAIN FOREIGN CORPORA-
TIONS.—Subparagraph (C) shall not apply with respect to a
distribution in liquidation of a foreign corporation to which
part II of subchapter C applies if such corporation derived
less than 50 percent of its gross income from sources within /
the United States for the 3-year period ending with the close
of such corporation's taxable year immediately preceding
the year during which the distribution occurred."
(D) EFFECTIVE DATE.—The amendments made by this para- 26 use 904
graph shall apply to taxable years beginning after Decem- note.
ber 31,1975.
(3) TREATMENT OF CERTAIN CAPITAL LOSS CARRYOVERS AND
CARRYBACKS FOR PURPOSES OF THE LIMITATION ON CREDIT FOR
FOREIGN TAXES.—
(A) IN GENERAL.—Clause (iii) of section 904(b)(2)(A) (relat- 26 u s e 904.
ing to treatment of capital gains of corporations for purposes
of the foreign tax credit limitation) is amended by striking
out "any net capital loss" and inserting in lieu thereof "for
purposes of determining taxable income from sources with-
out the United States, any net capital loss (and any amount
which is a short-term capital loss under section 1212(a))". 26 u s e 1212.
(B) EFFECTIVE DATE.—The amendment made by subpara- 26 u s e 904
graph (A) shall apply to taxable years beginning ^ t e r note.
December 31,1975.
(4) TREATMENT OF CAPITAL LOSS CARRYOVERS FOR PURPOSES OF
FOREIGN LOSS RECAPTURE.—
(A) I N GENERAL.—Subparagraph (a) of section 904(f)(2) 26 u s e 904.
(defining overall foreign loss) is amended by striking out "or
any capital loss carrybacks and carryovers to such year
under section 1212". 26 u s e 1212.
(B) FOREIGN OIL RELATED LOSSES.—Subparagraph (A) of
section 904(f)(4) (relating to determination of foreign oil 26 u s e 904.
92 STAT. 2914 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 907. related loss where section 907 applies) is amended by strik-
ing out "or any capital loss carrybacks and carryovers to
26 use 1212. such year under section 1212".
26 use 904 (C) EFFECTIVE DATE.—The amendments made by this para-
"***^- graph shall apply—
(i) to overall foreign losses sustained in taxable years
beginning after December 31,1975, and
(ii) to foreign oil related losses sustained in taxable
years ending after December 31,1975,
(5) EFFECTIVE DATE FOR RECAPTURE OF FOREIGN OIL RELATED
LOSSES.—
26 use 904 (A) I N GENERAL.—Paragraph (1) of section 1032(c) of the
°ote- Tax Reform Act of 1976 is amended to read as follows:
"(1) IN GENERAL.—Except as provided in paragraphs (2), (3),
and (5), the amendment made by subsection (a) shall apply to
losses sustained in tsixable years beginning after December 31,
1975. The amendment made by subsection (bXD shall apply to
taxable years beginning after December 31, 1975. The amend-
ment made by subsection (b)(2) shall apply to losses sustained in
taxable years ending after December 31,1975."
26 use 904 (B) FOREIGN OIL RELATED LOSSES.—Subsection (c) of section
note. 1032 of the Tax Reform Act of 1976 is amended by adding at
the end thereof the following new paragraph:
"(5) FOREIGN OIL RELATED LOSSES.—The amendment made by
subsection (a) shall apply to foreign oil related losses sustained in
taxable years ending after December 31,1975."
26 use 904 (6) TRANSITIONAL RULES FOR CERTAIN MINING OPERATIONS.—The
note. second sentence of paragraph (2) of section 1031(c) of the Tax
Reform Act of 1976 is amended to read as follows: "In the case of
a loss sustained in a taxable year beginning before January 1,
1979, by any corporation to which this paragraph applies, if
26 use 904. section 904(a)(1) of such Code (as in effect before the enactment of
this Act) applies with respect to such taxable year, the provisions
of section 904(f) of such Code shall be applied with respect to such
loss under the principles of such section 904(a)(1)."
(7) TRANSITIONAL RULES FOR RECAPTURE OF CERTAIN FOREIGN
LOSSES.—
26 use 904 (A) COMPUTATION OF DEFICIT IN EARNINGS AND PROFITS FOR
note. PURPOSES OP THE RECAPTURE OF CERTAIN FOREIGN LOSSES.—
Paragraph (4) of section 1032(c) of the Tax Reform Act of
1976 (relating to limitation based on deficit in earnings and
profits for purposes of the recapture of foreign losses) is
amended by adding at the end thereof the following new
sentence: "For purposes of the preceding sentence, there
shall be taken into account only earnings and profits of the
corporation which (A) were accumulated in teixable years of
the corporation beginning after December 31, 1962, and
during the period in which the stock of such corporation
from which the loss arose was held by the taxpayer and (B)
are attributable to such stock."
(B) RECAPTURE OF POSSESSION LOSSES DURING TRANSITIONAL
PERIOD W H E R E TAXPAYER IS ON A PER-COUNTRY BASIS.—
26 use 904 (i) Subsection (c) of section 1032 of the Tax Reform Act
note. of 1976 (relating to effective dates for recapture of
foreign losses) is amended by adding at the end thereof
the following new paragraph:
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2915
"(6) RECAPTURE OF POSSESSION LOSSES DURING TRANSITIONAL
PERIOD WHERE TAXPAYER IS ON A PER-COUNTRY BASIS.—
"(A) APPUCATION OF PARAGRAPH.—This paragraph shall
apply if—
"(i) the teixpayer sustained a loss in a possession of the
United States in a taxable year beginning after Decem-
ber 31,1975, and before January 1,1979, «
"(ii) such loss is attributable to a trade or business
engaged in by the taxpayer in such possession on Janu-
ary 1,1976, and
"(iii) the taxpayer chooses to have the benefits of
subpart A of part III of subchapter N apply for such
taxable year and section 904(a)(1) of the Internal Reve-
nue Code of 1954 (as in effect before the enactment of 26 USC 904.
this Act) applies with respect to such taxable year.
"(B) NO RECAPTURE DURING TRANSITION PERIOD.—In any
case to which this paragraph applies, for purposes of deter-
mining the liability for tax of the taxpayer for taxable years
beginning before January 1, 1979, section 904(f) of the
Internal Revenue Code of 1954 shall not apply with respect
to the loss described in subparagraph (A)(i).
"(C) RECAPTURE OF LOSS AFTER THE TRANSITION PERIOD.—In
any case to which this paragraph applies—
"(i) for purposes of determining the liability for tax of
the taxpayer for taxable years beginning after Decem-
ber 31,1978, section 904(f) of the Internal Revenue Code
of 1954 shall be applied with respect to the loss described
in subparagraph (A)(i) under the principles of section
904(a)(1) of such Code (as in effect before the enactment
ofthis Act);but
"(ii) in the case of any taxpayer and any possession,
the aggregate amount to which such section 904(f)
applies by reason of clause (i) shall not exceed the sum of
the net incomes of all affiliated corporations from such
possession for taxable years of such affiliated corpora-
tions beginning after December 31, 1975, and before
January 1,1979.
"(D) TAXPAYERS NOT ENGAGED IN TRADE ON BUSINESS ON
JANUARY 1, 1976.—In any case to which this paragraph
applies but for the fact that the taxpayer was not engaged in
a trade or business in such possession on January 1,1976, for
purposes of determining the liability for tax of the taxpayer
for taxable years beginning before January 1,1979; if section
904(a)(1) of such Code (as in effect before the enactment of
this Act) applies with respect to such taxable year, the
provisions of section 904(f) of such Code shall be applied with
respect to the loss described in subparagraph (A)(i) under the
principles of such section 904(a)(1).
"(E) AFFILIATED CORPORATION DEFINED.—For purposes of
subparagraph (C)(ii), the term 'affiliated corporation' means
a corporation which, for the taxable year for which the net
income is being determined, was not a member of the same
affiliated group (within the meaning of section 1504 of the
Internal Revenue Code of 1954) as the taxpayer but would 26 USC 1504.
have been a member of such group but for the application of
subsection (b) of such section 1504."
92 STAT. 2916 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 904 (ii) Paragraph (3) of section 1031(c) of the Tax Reform
note. Act of 1976 is amended by striking out the last sentence.
(8) LIMITATIONS ON FOREIGN TAX CREDIT WHERE INDIVIDUAL HAS
FOREIGN OIL AND GAS EXTRACTION INCOME.—
(A) REDUCTION I N FOREIGN TAX CREDIT FOR CERTAIN INDI-
VIDUALS HAVING FOREIGN OIL AND GAS EXTRACTION INCOME.—
26 use 907. Subsection (a) (as amended by this Act) of section 907
(relating to special rules in case of foreign oil and gas
income) is further amended to read as follows:
"(a) REDUCTION IN AMOUNT ALLOWED AS FOREIGN TAX UNDER
26 use 901. SECTION 901.—In applying section 901, the amount of any oil and gas
extraction taxes paid or accrued (or deemed to have been paid) during
the taxable year which would (but for this subsection) be taken into
account for purposes of section 901 shall be reduced by the amount (if
any) by which the amount of such taxes exceeds the product of—
"(1) the amount of the foreign oil and gas extraction income for
the taxable year,
"(2) multiplied by—
"(A) in the case of a corporation, the percentage which is
26 use 11. equal to the highest rate of tax specified under section 11(b),
or
"(B) in the case of an individual, a fraction the numerator
of which is the tax against which the credit under section
26 use 901. 901(a) is taken and the denominator of which is the taxpay-
er's entire taxable income."
26 use 904. (B) APPUCATION OF SECTION 904 SEPARATELY TO FOREIGN OIL
RELATED INCOME OF INDIVIDUALS.—Subsection (b) of section
26 use 907, 907 (relating to application of section 904 limitation) is
904. amended to read as follows:
"(b) APPUCATION OF SECTION 904 LIMITATION.—The provisions of
section 904 shall be applied separately with respect to—
"(1) foreign oil related income, and
"(2) other taxable income."
(C) TECHNICAL AMENDMENT.—Paragraph (4) of section
26 use 904. 904(f) (relating to recapture of overall foreign loss) is
amended by striking out "In the case of a corporation to
26 use 907. which section 907(b)(1) applies" and inserting in lieu thereof
"In making the separate computation under this subsection
with respect to foreign oil related income which is required
by section 907(b)".
26 use 907 (D) EFFECTIVE DATES.—
note. (i) The amendments made by this paragraph shall
apply, in the case of individuals, to taxable years ending
after December 31,1974, and, in the case of corporations,
to taxable years ending after December 31,1976.
(ii) In the case of any taxable year ending after
December 31, 1975, with respect to foreign oil related
income (within the meaning of section 907(c) of the
26 use 907. Internal Revenue Code of 1954), the overall limitation
26 use 904. provided by section 904(a)(2) of such Code shall apply
and the per-country limitation provided by section
904(a)(1) of such Code shall not apply.
(9) EFFECTIVE DATE FOR DISALLOWANCE OF FOREIGN TAX CREDIT
26 use 907 FOR CERTAIN PRODUCTION-SHARING CONTRACTS.—The second sen-
note. tence of paragraph (3) of section 1035(c) of the Tax Reform Act of
1976 (relating to tax credit for production-sharing contracts) is
amended to read as follows: "A contract described in the preced-
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2917
ing sentence shall be taken into account under paragraph (1)
only with respect to Eimounts (A) paid or accrued to the foreign
government before January 1, 1978, and (B) attributable to
income earned before such date."
(10) FOREIGN TAXES ATTRIBUTABLE TO SECTION 9 1 1 EXCLUSION.—
(A) IN GENERAL.—The last sentence of section 911(a) (relat- 26 USC 911.
ing to earned income from sources without the United
States) is amended to read as follows:
"An individual shall not be allowed as a deduction from his gross
income any deductions (other than those allowed by section 151, 26 USC 151.
relating to personal exemptions), to the extent that such deductions
are properly allocable to or chargeable against amounts excluded
from gross income under this subsection. For purposes of this title,
the amount of the income, war profits, £ind excess profits taxes paid or
accrued by any individual to a foreign country or possession of the
United States for any taxable year shall be reduced by an amount
determined by multiplying the amount of such taxes by a fraction—
"(A) the numerator of which is the tax determined under
subsection (d) (1) (B), and
"(B) the denominator of which is the sum of the amount
referred to in subparagraph (A), plus the limitation imposed for
the taxable year by section 904(a).". 26 USC 904.
(B) EFFECTIVE DATE.—The amendment made by subpara- 26 USC 911
graph (A) shall apply to taxable years beginning after note.
December 31,1976.
(11) SALE OF ASSETS BY A POSSESSIONS CORPORATION.—
(A) IN GENERAL.—Subsection (a) of section 936 (relating to 26 USC 936.
Puerto Rico and possession tax credit) is amended by redesig-
nating paragraph (2) as paragraph (3) and by amending so
much of paragraph (1) as precedes subparagraph (A) thereof
to read as follows:
"(1) IN GENERAL.—Except as provided in paragraph (3), if a
domestic corporation elects the application of this section and if
the conditions of both subparagraph (A) and subparagraph (B) of
paragraph (2) are satisfied, there shall be allowed as a credit
against the tax imposed by this chapter an amount equal to the
portion of the tax which is attributable to the sum of—
"(A) the taxable income, from sources without the United
States, from—
"(i) the active conduct of a trade or business within a
possession of the United States, or
"(ii) the sale or exchange of substantially all of the
assets used by the taxpayer in the active conduct of such
trade or business, and
"(B) the qualified possession source investment income.
"(2) CONDITIONS WHICH MUST BE SATISFIED.—The conditions
referred to in paragraph (1) are:".
(B) INCOME FROM SALE OF CARRYOVER BASIS PROPERTY NOT
TAKEN INTO ACCOUNT.—
(i) Subsection (d) of section 936 (relating to definitions)
is amended by adding at the end thereof the following
new paragraph:
"(3) CARRYOVER BASIS PROPERTY.—
"(A) I N GENERAL.—Income from the sale or exchange of
any asset the basis of which is determined in whole or in part
by reference to its basis in the hands of another person shall
92 STAT. 2918 PUBLIC LAW 95-600—NOV. 6, 1978
not be treated as income described in subparagraph (A) or (B)
of subsection (a)(1).
"(B) EXCEPTION FOR POSSESSIONS CORPORATIONS, ETC.—For
purposes of subparagraph (A), the holding of any asset by
another person shall not be taken into account if throughout
the period for which such asset was held by such person
26 use 931, section 931, this section, or section 957(c) applied to such
957. person.",
(ii) The heading of such subsection (d) is amended to
read as follows:
"(d) DEFINITIONS AND SPECIAL RULES.—".
26 use 936 (C) EFFECTIVE DATE.—The amendments made by this para-
note, graph shall apply as if included in section 936 of the Internal
26 use 936. Revenue Code of 1954 at the time of its addition by section
1051(b) of the Tax Reform Act of 1976.
26 use 995 (12) GAIN ON DISPOSITION OF STOCK IN A DISC.—
note- (A) DELAY IN EFFECTIVE DATE.—Paragraph (4) of section
1101(g) of the Tax Reform Act of 1976 (relating to effective
date for amendment relating to gain or disposition of DISC
stock) is amended by striking out "December 31,1975" and
inserting in lieu thereof "December 31,1976".
(B) TECHNICAL AMENDMENT.—Paragraph (1) of section
26 use 995. 995(c) (relating to gain on disposition of stock in a DISC) is
amended by adding at the end thereof the following new
sentence:
"Subparagraph (C) shall not apply if the person receiving the
stock in the disposition has a holding period for the stock which
includes the period for which the stock was held by the share-
holder disposing of such stock."
26 use 995 (C) EFFECTIVE DATE.—The amendment made by subpara-
note. graph (B) shall apply to dispositions made after December
31,1976, in taxable years ending after such date.
(13) LIMITATION ON PARTNER'S TAX WHERE PARTNER RECEIVES
26 USE 1248. AMOUNT TREATED AS SALE OF SECTION 1248 STOCK.—
26 use 751. (A) I N GENERAL.—Section 751 (relating to unrealized
receivables and inventory items) is amended by adding at
the end thereof the following new subsection:
"(e) LIMITATION ON TAX ATTRIBUTABLE TO DEEMED SALES OF SEC-
26 use 1248. TiON 1248 STOCK.—For purposes of applying this section and sections
26 use 731, 731, 736, and 741 to any amount resulting from the reference to
736, 741. section 1248(a) in the second sentence of subsection (c), in the case of
26 use 1248. g^ji individual, the tax attributable to such amount shall be limited in
the manner provided by subsection (b) of section 1248 (relating to gain
from certain sales or exchanges of stock in certain foreign corpora-
tion)."
26 use 736. (B) CROSS REFERENCE.—Section 736 (relating to pajmients
to a retiring partner or a deceased partner's successor in
interest) is amended by adding at the end thereof the
following new subsection:
"(c) CROSS REFERENCE.—
"For limitation on the tax attributable to certain gain connected with
section 1248 stock, see section 751(e)."
26 use 751 (C) EFFECTIVE DATE.—The amendments made by this para-
note- graph shall apply to transfers beginning after October 9,
1975, and to sales, exchanges, and distributions taking place
after such date.
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2919
(14) EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN PERSONS
TO AVOID F E D E R A L INCOME TAX.—
(A) TRANSFERS INVOLVING ESTATES.—Section 1491 (relating 26 use I49i.
to tax on transfers to avoid income tax) is amended by
striking out "trust" each place it appears therein and
inserting in lieu thereof "estate or trust".
(B) CLARIFICATION OF PARAGRAPH (3) OF SECTION 1492.—
Paragraph (3) of section 1492 (relating to nontaxable trans- 26 use 1492.
fers) is amended to read as follows:
"(3) To a transfer described in section 367; or". 26 USe 367.
(C) EFFECTIVE DATE.—The amendments made by this para- ^^ ^^^ ^^^^
graph shall apply to transfers after October 2,1975. ^^^^'
(15) ELECTION TO TREAT NONRESIDENT ALIEN INDIVIDUAL AS
RESIDENT OF THE UNITED STATES.—
(A) PROVISIONS AFFECTED BY ELECTION.—Paragraph (1) of
section 6013(g) (relating to election to treat nonresident alien 26 use 6013.
individual as resident of the United States) is amended to
read as follows:
"(1) I N GENERAL.—A nonresident alien individual with respect
to whom this subsection is in effect for the taxable year shall be
treated as a resident of the United States—
"(A) for purposes of chapters 1 and 5 for all of such taxable 26 USC i et seq.,
year, and l^'^},fr^'^t
26 u s e 3401 et
"(B) for purposes of chapter 24 (relating to wage withhold- seq.
ing) for payments of wages made during such taxable year."
(B) CONFORMING AMENDMENT.—Paragraph (5) of section
6013(g) (relating to termination of election by Secretary) is 26 use 6013.
amended by striking out "chapter 1" and inserting in lieu
thereof "chapters 1 and 5".
(C) YEAR OF RESIDENCY.—Paragraph (1) of section 6013(h)
(relating to return for year nonresident alien becomes resi-
dent) is amended—
(i) by striking out "chapter 1" and inserting in lieu
thereof "chapters 1 and 5", and 26 use i et seq.
(ii) by inserting before the period at the end thereof ^"^^^ ^^ *^9-
the following: ", and for purposes of chapter 24 (relating 26 use 3401 et
to wage withholding) for payments of wages made ^^i-
during such taxable year".
(D) CERTAIN AMOUNTS WITHHELD UNDER CHAPTER 3
TREATED AS OVERPAYMENTS OF TAX.—Subsection (b) of section
6401 (relating to excessive credits) is amended by adding at 26 use 6401.
the end thereof the following new sentence: "For purposes of
the preceding sentence, any credit allowed under paragraph
(1) of section 32 (relating to withholding of tax on nonresi- 26 use 32.
dent aliens and on foreign corporations) to a nonresident
alien individual for a taxable year with respect to which an
election under section 6013 (g) or (h) is in effect shall be 26 use 6013.
treated as an amount allowable as a credit under section 31." 26 use 31.
(E) EFFECTIVE DATES.—The amendments made by this 26 use 6013
paragraph— "°*^-
(i) to the extent that they relate to chapter 1 or 5 of the
Internal Revenue Code of 1954, shall apply to taxable 26 use i et seq.
years ending on or after December 31,1975, and 1491 et seq.
(ii) to the extent that they relate to wage withholding
under chapter 24 of such Code, shall apply to remunera- 26 use 340i et
tion paid on or after the first day of the first month ^^?
92 STAT. 2920 PUBLIC LAW 95-600—NOV. 6, 1978
which begins more than 90 days after the date of the
enactment of this Act.
(16) NONRESIDENT ALIEN INDIVIDUAL ALLOWED TO BE TREATED AS
RESIDENT OF THE UNITED STATES.—
26 use 6013. (A) IN GENERAL.—Paragraph (2) of section 6013(g) (relating
to election to treat nonresident alien individual as resident
of the United States) is amended by striking out "who, at the
time an election was made under this subsection," and
inserting in lieu thereof "who, at the close of the taxable
year for which an election under this subsection was made,".
26 use 6013 (B) EFFECTIVE DATE.—The amendment made by subpara-
note. graph (A) shall apply to taxable years beginning after
December 31,1975.
(v) AMENDMENT OF SECTION 1239(a).—
26 use 1239. (1) IN GENERAL.—Subsection (a) of section 1239 (relating to gain
from sale of depreciable property between certain related tax-
payers) is amended by striking out "subject to the allowance for
depreciation provided in section 167" and inserting in lieu
thereof "of a character which is subject to the allowance for
26 use 167. depreciation provided in section 167".
26 use 1239 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
note. shall apply as if included in the amendment made to section 1239
26 use 1239. of the Internal Revenue Code of 1954 by section 2129(a) of the Tax
Reform Act of 1976.
(w) RECAPTURE OF DEPRECIATION ON PLAYER CONTRACTS.—
26 use 1245. (1) IN GENERAL.—Subparagraph (C) of section 1245(a)(4)
(defining previously unrecaptured depreciation with respect to
contracts transferred) is amended to read as follows:
(C) PREVIOUSLY UNRECAPTURED DEPRECIATION WITH
RESPECT TO CONTRACTS TRANSFERRED.—For purposes of Sub-
paragraph (A)(ii), the term 'previously unrecaptured
depreciation' means the amount of any deduction allowed or
allowable to the taxpayer transferor for the depreciation of
any contracts involved in such transfer."
(2) RECAPTURE OF DEPRECIATION WITH RESPECT TO INITIAL CON-
TRACTS.—Subparagraph (B) of section 1245(a)(4) (defining previ-
ously unrecaptured depreciation with respect to initial contracts)
is amended—
(A) by inserting "attributable to periods after December
31,1975," after "depreciation" in clause (i),
(B) by inserting "incurred after December 31, 1975," after
"losses ' in clause (i), and
(C) by inserting "described in clause (i)" after "amounts"
in clause (ii).
26 use 1245 (3) EFFECTIVE DATE.—The amendments made by this subsection
not^- shall apply to transfers of player contracts in connection with
any sale or exchange of a franchise after December 31, 1975.
(x) TREATMENT OF PENSIONS AND ANNUITIES FOR 50-PERCENT MAXI-
MUM RATE ON PERSONAL SERVICE INCOME.—
26 use 1348. (1) IN GENERAL.—Subparagraph (A) of section 1348a))(l) (defin-
ing personal service income) is amended by striking out "pension
or annuity" and inserting in lieu thereof "pension or annuity
which arises from an employer-employee relationship or from
tax-deductible contributions to a retirement plan".
(2) TECHNICAL AMENDMENT.—The last sentence of section
1348(b) is amended by striking out "earned income" and insert-
ing in lieu thereof "personal service income".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2921
(3) EFFECTIVE DATE.—The amendments made by this section 26 use 1348
shall apply to taxable years beginning after December 31,1976. "o^^-
(y) CHANGES IN THE SUBCHAPTER S PROVISIONS.—
(1) GRANTOR TRUST MAY BE TREATED AS PERMITTED SHAREHOLDER
AFTER DECEDENT'S DEATH; GRANTOR OR GRANTOR TRUST MUST BE
INDIVIDUAL.—Paragraph (1) of subsection (e) of section 1371 (as
redesignated by this Act) is amended to read as follows:
"(1)(A) A trust all of which is treated as owned by the grantor 26 use 1371.
(who is an individual who is a citizen or resident of the United
States) under subpart E of part I of subchapter J of this chapter.
"(B) A trust which was described in subparagraph (A) immedi-
ately before the death of the grantor and which continues in
existence after such death, but only for the 60-day period begin-
ning on the day of the grantor's death. If a trust is described in
the preceding sentence and if the entire corpus of the trust is
includible in the gross estate of the grantor, the preceding
sentence shall be applied by substituting *2-year period' for '60-
day period'."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 1371
shall apply to taxable years beginning after December 31, 1976. note.
(z) WITHHOLDING OF FEDERAL TAXES ON CERTAIN INDIVIDUALS E N -
GAGED IN FISHING.—
(1) I N GENERAL.—Section 1207(f)(4) of the Tax Reform Act of 26 USC 3121
1976 (relating to effective date of provisions relating to withhold- "ote.
ing on certain individuals engaged in fishing) is amended by
striking out "December 31, 1971" each place it appears and
inserting in lieu thereof "December 31,1954".
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 26 USC 3121
shall take effect on October 4,1976. "ote.
(aa) WITHDRAWALS FROM INDIVIDUAL RETIREMENT ACCOUNTS,
ETC.—
(1) IN GENERAL.—The last sentence of section 4973(b) (relating 26 USC 4973.
to excess contributions to individual retirement accounts, etc.) is
amended by striking out "solely because of employer contribu-
tions to a plan or contract described in section 219(b)(2)" and 26 USC 219.
inserting in lieu thereof "solely because of ineligibility under
section 219(b)(2) or section 220(b)(3)". 26 USC 219,
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) ^20.
shall apply as if included in section 1501 of the Tax Reform Act of 26 USC 4973
1976 at the time of the enactment of such Act. "ote.
(bb) AMENDMENTS RELATING TO DISCLOSURE OF TAX RETURNS.—
(1) DISCLOSURE OF MAILING ADDRESS FOR PURPOSES OF COLLECT-
ING CERTAIN STUDENT LOANS.—
(A) Subsection (m) of section 6103 (relating to disclosure of 26 USC 6103.
taxpayer identity information) is amended to read as follows:
"(m) DISCLOSURE OF TAXPAYER IDENTITY INFORMATION.—
"(1) TAX REFUNDS.—The Secretary may disclose taxpayer iden-
tity information to the press and other media for purposes of
notifying persons entitled to tax refunds when the Secretary,
after reasonable effort and lapse of time, has been unable to
locate such persons.
"(2) FEDERAL CLAIMS.—Upon written request, the Secretary
may disclose the mailing address of a taxpayer to officers and
employees of an agency personally and directly engaged in, and
solely for their use in, preparation for any administrative or
judicial proceeding (or investigation which may result in such a
proceeding) pertaining to the collection or compromise of a
39-194 O—80—pt. 3 19 ; QL3
92 STAT. 2922 PUBLIC LAW 95-600—NOV. 6, 1978
Federal claim against such taxpayer in accordance with the
provisions of section 3 of the Federal Claims Collection Act of
31 use 952. 1966.
"(3) NATIONAL INSTITUTE FOR OCCUPATIONAL SAFETY AND
HEALTH.—Upon written request, the Secretary may disclose the
mailing address of taxpayers to officers and employees of the
National Institute for Occupational Safety and Health solely for
the purpose of locating individuals who are, or may have been,
exposed to occupational hazards in order to determine the status
of their health or to inform them of the possible need for medical
care and treatment.
"(4) INDIVIDUALS WHO HAVE DEFAULTED ON STUDENT LOANS.—
"(A) I N GENERAL.—Upon written request by the Commis-
sioner of Education, the Secretary may disclose the mailing
address of any taxpayer who has defaulted on a loan made
from the student loan fund established under part E of title
2C use 1088 et IV of the Higher Education Act of 1965 for use only for
*•«?• purposes of locating such taxpayer for purposes of collecting
such loan.
"(B) DISCLOSURE TO INSTITUTIONS.—Any mailing address
disclosed under subparagraph (A) may be disclosed by the
Commissioner of Education to any educational institution
with which he has an agreement under part E of title IV of
the Higher Education Act of 1965 only for use by officers,
employees or agents of such institution whose duties relate
to the collection of student loans for purposes of locating
individuals who have defaulted on student loans made by
such institution pursuant to such agreement for purposes of
collecting such loans."
26 use 6103. (B) Paragraph (3) of section 6103(a) is amended by insert-
ing ", subsection (m)(4)(B)," after "subsection (e)(l)(D)(iii)".
26 use 7213. (C) Paragraph (2) of section 7213(a) (relating to penalties
for unauthorized disclosure of information) is amended—
(i) by striking out "or any local" and inserting in lieu
thereof ", any local";
(ii) by inserting ", or any educational institution"
after' 'enforcement agency''; and
26 use 6103. *, \ (iii) by striking out "section 6103(d) or (1)(6)" and
inserting in lieu thereof "subsection (d), (1)(6), or
(m)(4)(B) of section 6103".
(2) DISCLOSURE OF TAX RETURN INFORMATION REGARDING SPE-
CIAL FUEL EXCISE TAXES.—Subsection (d) of section 6103 (relating
to disclosure to State tax officials) is amended by inserting " 3 1 , '
after "24,".
(3) RETURN INFORMATION OTHER THAN TAXPAYER RETURN INFOR-
MATION.—Paragraph (2) of section 6103(i) (relating to return
information other than taxpayer return information) is amended
by adding at the end thereof the following new sentence: "For
purposes of this paragraph, the name and address of the tax-
payer shall not be treated as taxpayer return information."
(4) DISCLOSURE OF RETURN INFORMATION CONCERNING POSSIBLE
CRIMINAL ACTIVITIES.—Paragraph (3) of section 6103(i) (relating
to disclosure of return information concerning possible criminal
activities) is amended by adding at the end thereof the following
new sentence: "For purposes of the preceding sentence, the name
and address of the taxpayer shall not be treated as taxpayer
return information if there is return information (other than
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2923
taxpayer r e t u r n information) which may constitute evidence of a
violation of Federal criminal laws."
(5) DISCLOSURE UNDER TAX CONVENTIONS.—Section 6103(k)(4) 26 USC 6103.
(relating to disclosure of r e t u r n information u n d e r income t£ix
conventions) is amended—
(A) by striking out "income" in t h e caption thereof,
(B) by inserting "or gift and estate t a x " after "income tax",
and
(C) by inserting ",, or other convention relating to t h e
exchange of t a x information," after "convention" t h e first
place it appears.
(6) CRIMINAL PENALTY FOR ^UNAUTHORIZED DISCLOSURE OF INFOR-
MATION.—Section 7213(a) (relating to unauthorized disclosure of 26 USC 7213.
information) is amended—
(A) by striking out "to disclose" in paragraphs (1), (2), a n d
(5) a n d inserting in lieu thereof ^'willfully to disclose",
(B) by striking out "to thereafter print or publish" in
p a r a g r a p h (3) a n d inserting in lieu thereof "thereafter will-
fully to print or publish", and
(C) by striking out "to offer" in paragraph (4) and inserting
in lieu thereof "willfully to offer".
(7) N o CIVIL UABILITY FOR GOOD FAITH BUT ERRONEOUS INTER-
PRETATION OF DISCLOSURE REQUIREMENTS.—Section 7217 (relating 26 USC 7217.
to civil damages for unauthorized disclosure of r e t u r n and r e t u r n
information) is amended—
(A) by redesignating subsections (b) a n d (c) as subsections '
(c) and (d), respectively;
(B) by inserting after subsection (a) t h e following new
subsection:
"(b) N o LlABIUTY FOR GoOD FAITH BUT ERRONEOUS INTERPRETA-
TION.—No liability shall arise under this section with respect to a n y
disclosure which results from a good faith, b u t erroneous, interpreta-
tion of section 6103."; and 26 USC 6103.
(C) by striking out " A n action" in subsection (d) (as so
redesignated) a n d inserting in lieu thereof "PERIOD FOR
BRINGING ACTION.—An action".
(8) EFFECTIVE DATES.— 26 USC 6103
(A) Except as provided in subparagraph (B), t h e amend- "«*«•
ments made by this subsection shall take effect J a n u a r y 1,
1977.
(B) T h e a m e n d m e n t s made by p a r a g r a p h (7) shall apply
with respect to disclosures made after t h e date of t h e
enactment of this Act.
(cc) AMENDMENTS RELATING TO INCOME T A X RETURN PREPARERS.—
(1) NEGOTIATION OF CHECKS BY BANK.—Subsection (f) of section
6695 (relating to negotiation of check) is amended by adding a t 26 USC 6695.
t h e end thereof t h e following new sentence: " T h e preceding
sentence shall not apply with respect to t h e deposit by a bank
(within t h e meaning of section 581) of t h e full amount of t h e 26 USC 581.
check in t h e taxpayer's account in such bank for t h e benefit of
t h e taxpayer."
(2) DEFINITION.—Clause (iii) of section 7701(a)(36)(B) (relating 26 USC 7701.
to exceptions from t h e definition of income t a x r e t u r n preparer)
is amended to read as follows:
"(iii) prepares as a fiduciary a r e t u r n or claim for
refund for any person, or".
92 STAT. 2924 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 6695 (3) EFFECTIVE DATE.—The amendments made by this subsection
note. shall apply to documents prepared after December 31, 1976.
(dd) CLARIFICATION OF DECLARATORY JUDGMENT PROVISIONS WITH
RESPECT TO REVOCATIONS OF OR OTHER CHANGES IN THE QUAUFICA-
TIONS OF CERTAIN ORGANIZATIONS.—
26 u s e 7476. (1) QuAUFICATION OF CERTAIN RETIREMENT PLANS.—SubsOCtion
(a) of section 7476 (relating to declaratory judgments relating to
qualification of certain retirement plans) is amended by adding
"" at the end thereof the following new sentence: "For purposes
of this section, a determination with respect to a continuing
qualification includes any revocation of or other change in a
qualification."
26 u s e 7428. (2) CLASSIFICATION OF ORGANIZATIONS UNDER SECTION 501(c)(3),
ETC.—Subsection (a) of section 7428 (relating to declaratory
judgments relating to status and classification of organizations
26 use 501. under section 501(c)(3), etc.) is amended by adding at the end
thereof the following new sentence: "For purposes of this section,
a determination with respect to a continuing qualification or
continuing classification includes any revocation of or other
change in a qualification or classification."
26 use 7476 (3) EFFECTIVE DATE.—The amendments made by paragraphs (1)
note. and (2) shall take effect as if included in section 7476 or 7428 of
26 use 7476, the Internal Revenue Code of 1954 (as the case may be) at the
7428. respective times such sections were added to such Code.
(ee) CONTRIBUTIONS OF CERTAIN GOVERNMENT PUBUCATIONS.—
26 use 1231. (1) IN GENERAL.—Paragraph (1) of section 1231(b) (relating to
definition of property used in trade or business) is amended—
(A) by striking out "or" at the end of subparagraph (B),
(B) by striking out the period at the end of subparagraph
(C) and inserting in lieu thereof a comma and "or", and
(C) by adding at the end thereof the following new
subparagraph:
"(D) a publication of the United States Government (in-
cluding the Congressional Record) which is received from the
United States Government, or any agency thereof, other
than by purchase at the price at which it is offered for sale to
the public, and which is held by a taxpayer described in
26 use 1221. paragraph (6) of section 1221.".
26 use 1231 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
note. shall apply with respect to sales, exchanges, and contributions
made after October 4,1976.
(ff) EXEMPTION FOR LIGHT-DUTY TRUCK PARTS.—
26 use 4063. (1) IN GENERAL.—Section 4063 (relating to exemption of motor
vehicles and parts) is amended by adding at the end thereof the
following new subsection:
"(e) PARTS FOR LIGHT-DUTY TRUCKS.—The tax imposed by section
4061(b) shall not apply to the sale by the manufacturer, producer, or
importer of any article which is to be resold by the purchaser on or in
connection with the first retail sale of a light-duty truck, as described
26 use 4061. in section 4061(a)(2), or which is to be resold by the purchaser to a
second purchaser for resale by such second purchaser on or in
connection with the first retail sale of a light-duty truck."
(2) CONFORMING AMENDMENTS.—
26 use 4221. (A) Section 4221(c) (relating to manufacturer relieved from
26 use 4063. liability in certain cases) is amended by inserting "4063(e),"
after "4063(b),".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2925
B i (B) Section 4222(d) (relating to registration in t h e case of 26 USC 4222.
tax-free sales) is amended by inserting "4063(e)," after 26 USC 4063.
"4063(b),".
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 4063
shall t a k e effect on t h e first day of t h e first calendar month note.
beginning more t h a n 20 days after t h e date of t h e enactment of
this Act.
SEC. 702. TECHNICAL, CLERICAL, AND CONFORMING AMENDMENTS TO
ESTATE AND GIFT TAX PROVISIONS.
(a) AMENDMENTS RELATING TO TREATMENT OF SECTION 306 STOCK.—
(1) A P P U C A T I O N OF " F R E S H START" TO SECTION 306 STOCK.—
Subsection (a) of section 306 (relating to disposition of certain 26 USC 306.
stock) is amended by adding a t t h e end thereof t h e following new
paragraph:
"(3) ORDINARY INCOME FROM SALE OR REDEMPTION OF SECTION
306 STOCK W H I C H IS CARRYOVER BASIS PROPERTY ADJUSTED FOR 1976
VALUE.—
"(A) I N GENERAL.—If any section 306 stock was distributed
before J a n u a r y 1,1977, and if t h e adjusted basis of such stock
in t h e hands of t h e person disposing of it is determined under
section 1023 (relating to carryover basis), t h e n t h e amount 26 USC 1023.
treated as ordinary income under paragraph (1)(A) of this
subsection (or t h e amount treated as a dividend under
section 301(c)(1)) shall n o t exceed t h e excess of t h e a m o u n t 26 USC 301.
realized over t h e sum of—
"(i) t h e adjusted basis of such stock on December 31,
1976, and
"(ii) a n y increase in basis under section 1023(h). 26 USC 1023.
"(B) REDEMPTION MUST BE DESCRIBED I N SECTION 302(b).—
Subparagraph (A) shall apply to a redemption only if such
redemption is described in paragraph (1), (2), or (4) of section
302(b).^' 26 USC 302.
(2) CLARIFICATION THAT SECTION 303 OVERRIDES SECTION 306.—
Subsection (b) of section 306 (relating to exceptions) is amended
by adding a t t h e end thereof t h e following new paragraph:
"(5) SECTION 303 REDEMPTIONS.—To t h e e x t e n t t h a t section 303
applies to a distribution in redemption of section 306 stock.".
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 306
shall apply to t h e estates of decedents dying after December 31, note.
1979.
(b) COORDINATION OF DEDUCTION FOR ESTATE TAXES ATTRIBUTABLE
TO INCOME I N RESPECT OF A DECEDENT W I T H THE CAPITAL G A I N
DEDUCTION, E T C . —
(1) I N GENERAL.—Subsection (c) of section 691 (relating to 26 USC 691.
deduction for estate taxes in t h e case of income in respect of
decedents) is amended by adding a t t h e end thereof t h e following
new paragraph:
"(4) COORDINATION WITH CAPITAL GAIN DEDUCTION, ETC.—For
purposes of sections 1201, 1202, a n d 1211, a n d for purposes of 26 USC 1201,
section 57(a)(9), t h e amount of a n y gain taken into account with 1202, 1211.
respect to any item described in subsection (a)(1) shall be reduced 26 USC 57.
(but not below zero) by t h e amount of t h e deduction allowable
under paragraph (1) of this subsection with respect to such item."
(2) EFFECTIVE DATE.—The a m e n d m e n t m a d e by p a r a g r a p h (1) 26 USC 691
shall apply with respect to decedents dying after t h e date of t h e note.
enactment of this Act.
(c) AMENDMENTS RELATING TO CARRYOVER BASIS.—
92 STAT. 2926 PUBLIC LAW 95-600—NOV. 6, 1978
(1) A M E N D M E N T S RELATING TO THE POSTPONEMENT OF THE EFFEC-
TIVE DATE OF CARRYOVER BASIS PROVISIONS.—
(A) FAIR MARKET VALUE WHERE FARM VALUATION
26 use 1014. ELECTED.—Subsection (a) of section 1014 (relating to basis of
property acquired from a decedent) is amended to read as
follows:
"(a) IN GENERAL.—Except as otherwise provided in this section, the
basis of property in the hands of a person acquiring the property from
a decedent or to whom the property passed from a decedent shall, if
not sold, exchanged, or otherwise disposed of before the decedent's
death by such person, be—
"(1) the fair market value of the property at the date of the
decedent's death, or
"(2) in the case of an election under either section 2032 or
26 use 5712, section 811(j) of the Internal Revenue Code of 1939 where the
2032. decedent died after October 21, 1942, its value at the applicable
valuation date prescribed by those sections, or
26 use 2032. "(3) in the case of an election under section 2032.1, its value
determined under such section."
(B) GENERATION-SKIPPING TRANSFERS.—The second sen-
26 use 2614. tence of section 2614(a) (relating to basis adjustments in
connection with generation-skipping transfers) is amended
to read as follows: *Tf property is transferred in a generation-
„j skipping transfer subject to tax under this chapter which
occurs at the same time as, or after, the death of the deemed
transferor, the basis of such property shall be adjusted—
"(1) in the case of such a transfer occurring after June 11,1976,
and before January 1, 1980, in a manner similar to the manner
26 use 1014. provided under section 1014(a), and
"(2) in the case of such a transfer occurring after December 31,
26 use 1023. 1979, in a manner similar to the manner provided by section 1023
without regard to subsection (d) thereof (relating to basis of
property passing from a decedent dying after December 31,
1979)."
(2) MINIMUM CARRYOVER BASIS FOR TANGIBLE PERSONAL
PROPERTY.—
26 use 1023. (A) IN GENERAL.—Subsection (h) of section 1023 (relating to
adjustment to basis for December 31, 1976, fair market
value) is amended by adding at the end thereof the following
new paragraph:
"(3) MINIMUM BASIS FOR TANGIBLE PERSONAL PROPERTY.—
"(A) IN GENERAL.—If the holding period for any carryover
basis property which is tangible personal property includes
5 December 31, 1976, then, for purposes of determining gain
and applying this section, the adjusted basis of such property
. immediately before the death of the decedent shall be
treated as being not less than the amount determined under
subparagraph (B).
"(B) AMOUNT.—The amount determined under this sub-
paragraph for any property is—
"(i) the VEdue of such property (as determined with
respect to the estate of the decedent without regard to
26 use 2032. section 2032), divided by
"(ii) 1.0066 to the nth power where n equals the
number of full calendar months which have elapsed
between December 31, 1976, and the date of the dece-
dent's death."
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2927
(B) CONFORMING AMENDMENT.—Paragraph (3) of section
1023(g) (relating to decedent's basis unknown) is amended by 26 USC 1023.
striking out "to the person acquiring such property from the
decedent" and inserting in lieu thereof "and cannot be
reasonably ascertained".
(3) TREATMENT OF INDEBTEDNESS.—
(A) IN GENERAL.—Paragraph (1) of section 1023(g) (defining
fair market value) is amended by inserting "(without regard
to whether there is a mortgage on, or indebtedness in respect
of, the property)" after "chapter 11". 26 USC 2001 et
(B) TECHNICAL AMENDMENT.—Subsection (g) of section •^e?-
1023 (relating to other special rules and definitions) is
amended by striking out paragraph (4).
(4) ONLY ONE FRESH START WITH RESPECT TO CARRYOVER BASIS
PROPERTY HELD ON DECEMBER 31, 1976.—Subsection (h) of section
1023 (relating to adjustment to basis for December 31, 1976, fair 26 USC 1023.
market value) is amended by adding at the end thereof the
following new paragraph:
"(4) ONLY ONE FRESH START.—There shall be no increase in
basis under this subsection by reason of the death of any
decedent if the adjusted basis of the property in the hands of such
decedent reflects the adjusted beisis of property which w£is
carryover basis property with respect to a prior decedent."
(5) AUTOMATIC LONG-TERM STATUS FOR GAINS AND LOSSES ON
CARRYOVER BASIS PROPERTY.—Subparagraph (A) of section
1223(11) is amended by inserting "or 1023" after "section 1014". 26 USC 1223,
(6) CLARIFICATION THAT ADJUSTED BASIS IS INCREASED FOR STATE 1023,1014.
ESTATE TAXES.—
(A) Subsection (c) of section 1023 (relating to increase in 26 USC 1023.
basis for Federal and State estate taxes attributable to ^
appreciation) is amended to read as follows:
"(c) INCREASE IN BASIS FOR FEDERAL AND STATE ESTATE TAXES
ATTRIBUTABLE TO APPRECIATION.—
"(1) FEDERAL ESTATE TAXES.—The basis of appreciated carry-
over basis property (determined after any adjustment under
subsection (h)) which is subject to the tax imposed by section 2001 26 USC 2001.
or 2101 in the hands of the person acquiring it from the decedent 26 USC 2101.
shall be increased by an amount which bears the same ratio to
the Federal estate taxes as—
"(A) the net appreciation in value of such property, bears
to
"(B) the fair market value of all property which is subject
to the tax imposed by section 2001 or 2101. 26 USC 2001,
"(2) STATE ESTATE TAXES.—The basis of appreciated carryover 2101.
basis property (determined after any adjustment under subsec-
tion (h)) which is subject to State estate taxes in the hands of the
person acquiring it from the decedent shall be increased by an
amount which bears the same ratio to the State estate taxes as—
"(A) the net appreciation in value of such property, bears
to
"(B) the fair market value of all property which is subject
to the State estate taxes."
(B) The second sentence of paragraph (2) of section 1023(f) 26 USC 1023.
(defining net appreciation) is amended by striking out "For
purposes of subsection (d)," and inserting in lieu thereof "For
purposes of paragraph (2) of subsection (c), such adjusted
basis shall be increased by the amount of any adjustment
92 STAT. 2928 PUBLIC LAW 95-600—NOV. 6, 1978
under paragraph (1) of subsection (c), for purposes of subsec-
tion (d),".
26 use 1023. (C) Paragraph (3) of section 1023(f) (defining Federal and
State estate taxes) is amended to read as follows:
"(3) FEDERAL AND STATE ESTATE TAXES.—For purposes of subsec-
tion (c)—
"(A) FEDERAL ESTATE TAXES.—The term 'Federal estate
26 use 2001, taxes' means the tax imposed by section 2001 or 2101,
2101- reduced by the credits against such tax.
"(B) STATE ESTATE TAXES.—The term 'State estate taxes'
means any estate, inheritance, legacy, or succession taxes,
for which the estate is liable, actually paid by the estate to
any State or the District of Columbia.''
(7) CLARIFICATION OP INCREASE IN BASIS FOR CERTAIN STATE
26 use 1023. SUCCESSION TAXES.—Paragraph (2) of section 1023(e) (relating to
further increase in basis for certain State succession tax paid by
transferee of property) is amended by striking out "for which the
estate is not liable".
(8) CLARIFICATION OF APPLICATION OF FRESH START.—Para-
graphs (1) and (2)(A) of section 1023(h) (relating to adjustment to
basis for December 31,1976, fair market value) are each amended
by striking out "for purposes of determining gain" and inserting
in lieu thereof "for purposes of determining gain and applying
this section".
(9) TECHNICAL AMENDMENT WITH RESPECT TO CERTAIN TERM
26 use 1001. INTERESTS.—Paragraph (1) of section 1001(e) (relating to certain
26 use 1014, term interests) is amended by striking out "section 1014 or 1015"
1015 and inserting in lieu thereof "section 1014, 1015, or 1023".
1015 1023 ^^^^ EFFECTIVE DATE.—The amendments made by this subsec-
26 use 1014 ^^^^ shall take effect as if included in the amendments and
jjQ^g additions made by, and the appropriate provisions of the Tax
26 use 1 note. Reform Act of 1976.
(d) AMENDMENTS RELATING TO VALUATION OF CERTAIN FARM, ETC.,
REAL PROPERTY.—
(1) CLARIFICATION THAT SPECIAL VALUATION APPLIES ONLY TO
INTERESTS PASSING TO QUALIFIED HEIRS.—Paragraph (1) of section
26 use 2032A. 2032A(b) (defining qualified real property) is amended by striking
out "real property located in the United States" and inserting in
lieu thereof "real property located in the United States which
was acquired from or passed from the decedent to a qualified heir
of the decedent and".
(2) PROPERTY RECEIVED IN SATISFACTION OF PECUNIARY
BEQUEST.—Subsection (e) of section 2032A (relating to definitions
and special rules for farm valuation property) is amended by
adding at the end thereof the following new paragraph:
"(9) PROPERTY ACQUIRED FROM DECEDENT.—Property shall be
considered to have been acquired from or to have passed from the
decedent if—
26 use 1014. "(A) such property is so considered under section 10140t>)
(relating to basis of property acquired from a decedent),
"(B) such property is acquired by any person from the
estate in satisfaction of the right of such person to a
pecuniary bequest, or
"(C) such property is acquired by any person from a trust
in satisfaction of a right (which such person has by reason of
the death of the decedent) to receive from the trust a specific
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2929
dollar amount which is the equivalent of a pecuniary
bequest."
(3) USE OF FARM VALUATION PROPERTY TO SATISFY PECUNIARY
BEQUEST.—Subsection (a) of. section 1040 (relating to use of 26 USC 1040.
certain appreciated carryover basis property to satisfy pecuniary
bequest) is amended by inserting ^'(determined without regard to
section 2032A)" after "chapter 11". 26 USC 2032A,
(4) TREATMENT OF CERTAIN COMMUNITY PROPERTY.—Subsection ^^^^ ^^ *^9-
(e) of section 2032A is amended by adding at the end thereof the 26 USC 2032A.
following new paragraph:
"(10) COMMUNITY PROPERTY.—If the decedent and his surviving
spouse at any time held qualified real property as community
property, the interest of the surviving spouse in such property
shall be taken into account under this section to the extent
necessary to provide a result under this section with respect to
such property which is consistent with the result which would
have obtained under this section if such property had not been
community property."
(5) SUBSTITUTION OF BOND FOR PERSONAL LIABIUTY OF QUAUFIED
HEIR FOR THE RECAPTURE TAX WITH RESPECT TO FARM VALUATION
PROPERTY.—
(A) IN GENERAL.—Paragraph (6) of section 2032A(c) is ^
amended to read as follows:
"(6) LIABILITY FOR TAX; FURNISHING OF BOND.—The qualified
heir shall be personally liable for the additional tax imposed by
this subsection with respect to his interest unless the heir has
furnished bond which meets the requirements of subsection
(e)(ll)."
(B) BOND REQUIREMENTS.—Subsection (e) of section 2032A
is amended by adding at the end thereof the following new
paragraph:
"(11) BOND IN LIEU OF PERSONAL LIABIUTY.—If the qualified
heir makes written application to the Secretary for determina-
tion of the maximum amount of the additional tax which may be
imposed by subsection (c) with respect to the qualified heir's
interest, the Secretary (as soon as possible, and in any event
within 1 year after the making of such application) shall notify
the heir of such maximum amount. The qualified heir, on
furnishing a bond in such amount and for such period as may be
required, shall be discharged from personal liability for any
additional tax imposed by subsection (c) and shall be entitled to a
receipt or writing showing such discharge."
(6) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2032A
shall apply to the estates of decedents dying after December 31, note.
1976.
(e) AMOUNT OF SECURITY REQUIRED FOR EXTENDED PAYMENT PROVI-
SIONS FOR CLOSELY HELD BUSINESSES.—
(1) IN GENERAL.—
(A) Paragraph (2) of section 6324A(e) (defining aggregate
interest amount) is amended to read as follows:
"(2) REQUIRED INTEREST AMOUNT.—The term 'required interest 26 USC 6324J\^.
amount' means the aggregate amount of interest which will be
payable over the first 4 years of the deferral period with respect
to the deferred amount (determined as of the date prescribed by 26 USC 6151.
section 6151(a) for the payment of the tax imposed by chapter 26 USC 2001 et
11)." seq.
92 STAT. 2930 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 6324A. (B) Subparagraph (B) of section 6324A(b)(2) (relating to
maximum value of required property) is amended by strik-
ing out "aggregate interest amount and inserting in lieu
thereof "required interest amount".
(C) Paragraph (5) of section 6324A(d) (relating to special
rules) is amended by striking out "aggregate interest
amount" and inserting in lieu thereof 'required interest
amount".
(D) Paragraph (4) of section 6324A(e) (relating to applica-
tion of definitions in case of deficiencies) is amended by
striking out "aggregate interest amount" and inserting in
lieu thereof "required interei^t amount".
26 use 6324A (2) EFFECTIVE DATE.—The amendments made by this section
note. shall apply to the estates of decedents dying after December 31,
1976.
if) CLARIFICATION OF THE $3,000 ANNUAL EXCLUSION FROM THE
RULE INCLUDING IN GROSS ESTATE TRANSFERS WITHIN 3 YEARS OF
DEATH.—
(1) AMENDMENT OF SECTION 2035(b).—Subsection (b) of section
26 use 2035. 2035 (relating to adjustments for gifts made within 3 years of
decedent's death) is amended to read as follows:
"(b) EXCEPTIONS.—Subsection (a) shall not apply—
"(1) to any bona fide sale for an adequate and full consideration
in money or money's worth, and
"(2) to any gift to a donee made during a calendar year if the
26 use 6019. decedent was not required by section 6019 to file any gift tax
return for such year with respect to gifts to such donee.
Paragraph (2) shall not apply to any transfer with respect to a life
insurance policy."
26 use 2035 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
note. shall apply to the estates of decedents dying after December 31,
1976, except that it shall not apply to transfers made before
January 1,1977.
(g) AMENDMENTS RELATING TO ESTATE TAX MARITAL DEDUCTION.—
(1) DEDUCTION NOT REDUCED FOR GIFT TO SPOUSE WHICH IS
INCLUDED IN DONOR'S ESTATE BY REASON OF SECTION 2035.—
26 use 2056. Subparagraph (B) of section 2056(c)(1) (relating to adjustment to
estate tax marital deduction for certain gifts to spouse) is
amended by adding at the end thereof the following new
sentence:
"For purposes of this subparagraph, a gift which is includible
26 use 2035. in the gross estate of the donor by reason of section 2035 shall not
be taken into account."
(2) REDUCTION FOR GIFT TAX MARITAL DEDUCTION IN EXCESS OF 50
PERCENT OF THE VALUE OF GIFTS TO A SPOUSE.—ClaUSe (ii) of
26*USe 2056. section 2056(c)(1)(B) (relating to adjustment to estate tax marital
deduction for certain gifts to spouse) is amended by inserting
"required to be included in a gift tax return" after "with respect
to any gift".
26 use 2056 (3) EFFECTIVE DATE.—The amendment made by this subsection
note. shall apply to the estates of decedents dying after December 31,
1976.
26 use 2513, (h) COORDINATION OF SECTIONS 2513 AND 2035.—
2035. (1) IN GENERAL.—Section 2001 (relating to imposition and rate
26 use 2001. Qf estate tax) is amended by adding at the end thereof the
following new subsection: > ;= i
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2931
"(e) COORDINATION OF SECTIONS 2513 AND 2035.—If— 26 USC 2513,
"(1) the decedent's spouse was the donor of any gift one-half of 2035.
which was considered under section 2513 £is made by the dece- 26 USC 2513.
dent, and
"(2) the amount of such gift is includible in the gross estate of
the decedent's spouse by reason of section 2035, 26 USC 2035.
such gift shall not be included in the adjusted taxable gifts of the
decedent for purposes of subsection (b)(1)(B), and the aggregate
amount determined under subsection (b)(2) shall be reduced by the
amount (if any) determined under subsection (d) which was treated as
a tax payable by the decedent's spouse with respect to such gift."
(2) CONFORMING AMENDMENT.—Subparagraph (C) of section
2602(a)(1) (relating to amount of tax on generation-skipping 26 USC 2602.
transfers) is amended by striking out "section 2001(b))" and
inserting in lieu thereof "section 2001(b), as modified by section 26 USC 2001.
2001(e))".
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2001
shall apply with respect to the estates of decedents dying after note.
December 31,1976, except that such amendments shgdl not apply
to transfers made before January 1,1977.
(i) INCLUSION IN GROSS ESTATE OF STOCK TRANSFERRED BY THE
DECEDENT WHERE THE DECEDENT RETAINS OR ACQUIRES VOTING
RIGHTS.—
(1) IN GENERAL.—Section 2036 (relating to transfers with 26 USC 2036.
retained life estate) is amended by redesignating subsection (b) as
subsection (c) and by inserting after subsection (a) the following
new subsection:
"Ob) VOTING RIGHTS.—
"(1) IN GENERAL.—For purposes of subsection (a)(1), the reten-
tion of the right to vote (directly or indirectly) shares of stock of a
controlled corporation shall be considered to be a retention of the
enjoyment of transferred property.
' '(2) CONTROLLED CORPORATION.—For purposes of paragraph (1),
a corporation shall be treated as a controlled corporation if, at
any time after the transfer of the property and during the 3-year
period ending on the date of the decedent's death, the decedent
owned (with the application of section 318), or had the right 26 USC 318.
(either alone or in conjunction with any person) to vote, stock
possessing at least 20 percent of the total combined voting power
of all classes of stock.
"(3) COORDINATION WITH SECTION 2035.—For purposes of apply-
ing section 2035 with respect to paragraph (1), the relinquish- 26 USC 2035.
ment or cessation of voting rights shall be treated as a transfer of
property made by the decedent."
(2) CONFORMING AMENDMENT.—Subsection (a) of section 2036 is 26 USC 2036.
amended by striking out the last sentence thereof.
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2036
shall apply to transfers made after June 22,1976. note.
(j) AMENDMENTS RELATING TO INDIVIDUAL RETIREMENT ACCOUNTS,
ETC., FOR SPOUSE.—
(1) APPLICATION OF ESTATE TAX EXCLUSION TO INDIVIDUAL
RETIREMENT ACCOUNTS, ETC., FOR SPOUSE.—Subsection (e) of Sec-
tion 2039 (relating to exclusion of individual retirement ac- 26 USC 2039.
counts, etc.) is amended by striking out "section 219" each place 26 USC 219.
it appears and inserting in lieu thereof "section 219 or 220". 26 USC 219,
(2) TRANSFERS TO INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR 220.
SPOUSE TREATED AS TRANSFERS OF PRESENT INTERESTS.—SeCtion
92 STAT. 2932 PUBLIC LAW 95-600—NOV. 6, 1978
26 use 2503. 2503 (relating to taxable gifts) is amended by adding at the end
thereof the following new subsection:
"(d) INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR SPOUSE.—For
purposes of subsection (b), any payment made by an individual for the
benefit of his spouse—
"(1) to an individual retirement account described in section
26 use 408. 408(a),
"(2) for an individual retirement annuity described in section
408(b), or
26 use 409. "(3) for a retirement bond described in section 409,
shall not be considered a gift of a future interest in property to the
extent that such payment is allowable as a deduction under section
220".
(3) EFFECTIVE DATES.—
26 use 2039 (A) The amendment made by paragraph (1) shall apply to
note. the estates of decedents dying after December 31, 1976.
26 use 2503 (B) The amendment made by paragraph (2) shall apply to
note. transfers made after December 31,1976.
(k) PROVISIONS RELATING TO TREATMENT OF JOINT INTERESTS.—
(1) REMOVAL OF REQUIREMENT OF ACTUARIAL COMPUTATIONS FOR
JOINT INTERESTS IN PERSONAL PROPERTY.—
26 use 2511 et (A) IN GENERAL.—Subchapter (B) of chapter 12 (relating to
seq. transfers for purposes of the gift tax) is amended by inserting
26 use 2515. after section 2515 the following new section:
26 use 2515A. "SEC. 2515A. TENANCIES BY THE ENTIRETY IN PERSONAL PROPERTY.
"(a) CERTAIN ACTUARIAL COMPUTATIONS NOT REQUIRED.—In the
case of—
"(1) the creation (either by one spouse alone or by both spouses)
of a joint interest of a husband and wife in personal property
with right of survivorship, or
"(2) additions to the value thereof in the form of improvements,
reductions in the indebtedness thereof, or otherwise,
the retained interest of each spouse shall be treated as one-half of the
value of their joint interest.
"0)) EXCEPTION.—Subsection (a) shall not apply with respect to any
joint interest in property if the fair market value of the interest or of
the property (determined as if each spouse had a right to sever)
cannot reasonably be ascertained except by reference to the life
expectancy of one or both spouses."
(B) CHANGE IN SECTION 2515 HEADING.—The heading for
26 use 2515. section 2515 is amended to read as follows:
'SEC. 2515. TENANCIES BY THE ENTIRETY IN REAL PROPERTY."
(C) CLERICAL AMENDMENTS.—The table of sections for sub-
26 use 2511 et chapter B of chapter 12 is amended by striking out the item
seq. relating to section 2515 and inserting in lieu thereof the
26 use 2515. following:
"Sec. 2515. Teneincies by the entirety in real property.
"Sec. 2515A. Tenancies by the entirety in personal property."
26 use 2515A (D) EFFECTIVE DATE.—The amendments made by this para-
note. graph shall apply to joint interests created after December
31,1976.
(2) EXTENSION OF FRACTIONAL INTEREST RULE TO CERTAIN JOINT
26 use 2040. INTERESTS IN REAL OR PERSONAL PROPERTY CREATED BEFORE 1977.—
Section 2040 (relating to joint interests) as amended by this Act,
is further amended by adding at the end thereof the following
new subsections:
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2933
"(d) JOINT INTERESTS OF HUSBAND AND WIFE CREATED BEFORE
1977.—Under regulations prescribed by the Secretary— r
"(1) IN GENERAL.—In the case of any joint interest created
before January 1, 1977, which (if created after December 31,
1976) would have constituted a qualified joint interest under
subsection (b)(2) (determined without regard to clause (ii) of
subsection (b)(2)(B)), the donor may make an election under
this subsection to have paragraph (1) of subsection (b) apply with
respect to such joint interest.
"(2) TIME FOR MAKING ELECTION.—An election under this
subsection with respect to any property shall be made for the
calendar quarter in 1977,1978, or 1979 selected by the donor in a
gift tax return filed within the time prescribed by law for filing a
gift tax return for such quarter. Such an election may be made
irrespective of whether or not the amount involved exceeds the
exclusion provided by section 2503(b); but no election may be 26 USC 2503.
made under this subsection after the death of the donor.
"(3) TAX EFFECTS OF ELECTION.—In the case of any property
with respect to which an election has been made under this -
subsection, for purposes of this title—
"(A) the donor shall be treated as having made a gift at the
close of the calendar quarter selected under paragraph (2),
and
"(B) the amount of the gift shall be determined under
paragraph (4).
"(4) AMOUNT OF GIFT.—For purposes of paragraph (3)(B), the
amount of any gift is one-half of the amount—
"(A) which bears the same ratio to the excess of (i) the
value of the property on the date of the deemed making of
the gift under paragraph (3)(A), over (ii) the value of such
property on the date of the creation of the joint interest, as
"(B) the excess of (i) the consideration furnished by the
donor at the time of the creation of the joint interest, over (ii)
the consideration furnished at such time by the donor's
spouse, bears to the total consideration furnished by both
spouses at such time.
"(5) SPECIAL RULE FOR PARAGRAPH (4)(A).—For purposes of
paragraph (4)(A)—
"(A) in the case of real property, if the creation was not
treated as a gift at the time of the creation, or
"(B) in the case of personal property, if .the gift was
required to be included on a gift tax return but was not so
included, and the period of limitations on assessment under
section 6501 has expired with respect to the tax (if any) on 26 USC 6501.
such gift,
then the value of the property on the date of the creation of the
joint interest shall be treated as zero.
"(6) SUBSTANTIAL IMPROVEMENTS.—For purposes of this subsec-
tion, a substantial improvement of any property shall be treated
as the creation of a separate joint interest.
"(e) TREATMENT OF CERTAIN POST-1976 TERMINATIONS.—
"(1) IN GENERAL.—If—
"(A) before January 1,1977, a husband and wife had a joint
interest in property with right of survivorship,
"(B) after December 31, 1976, such joint interest was
terminated, and
92 STAT. 2934 PUBLIC LAW 95-600—NOV. 6, 1978
"(C) after December 31, 1976, a joint interest of such
husband and wife in such property (or in property the basis
of which in whole or in part reflects the basis of such
property) was created.
then paragraph (1) of subsection (b) shall apply to the joint
interest described in subparagraph (C) only if an election is made
under subsection (d).
"(2) SPECIAL RULES.—For purposes of applying subsection (d) to
property described in paragraph (1) of this subsection—
"(A) if the creation described in paragraph (1)(C) occurs
after December 31,1979, the election may be made only with
respect to the calendar quarter in which such creation
occurs, and
"(B) the creation of the joint interest described in para-
graphs (4) and (5) of subsection (d) is the creation of the joint
interest described in paragraph (1)(A) of this subsection."
(1) AMENDMENTS RELATING TO ORPHANS' EXCLUSION.—
(1) ORPHANS' EXCLUSION WHERE THERE IS A TRUST FOR MINOR
26 use 2057. CHILDREN.—Section 2057 (relating to bequests, etc., to certain
minor children) is amended by redesignating subsection (d) as
subsection (e) and by inserting after subsection (c) the following
new subsection:
"(d) QUALIFIED MINORS' TRUST.—
"(1) IN GENERAL.—For purposes of subsection (a), the interest of
a minor child in a qualified minors' trust shall be treated as an
interest in property which passes or has passed from the dece-
dent to such child.
"(2) QUALIFIED MINORS' TRUST.—For purposes of paragraph (1),
the term 'qualified minors' trust' means a trust—
"(A) except as provided in subparagraph (D), all of the
beneficiaries of which are minor children of the decedent,
"(B) the corpus of which is property which psisses or has
passed from the decedent to such trust,
"(C) except £is provided in paragraph (3), all distributions
from which to the beneficiaries of the trust before the
termination of their interests will be pro rata,
"(D) on the death of any beneficiary of which before the
termination of the trust, the beneficiary's pro rata share of
the corpus and accumulated income remains in the trust
for the benefit of the minor children of the decedent who
survive the beneficiary or vests in any person, and
"(E) on the termination of which, each beneficiary will
receive a pro rata share of the corpus and accumulated
income.
"(3) CERTAIN DISPROPORTIONATE DISTRIBUTIONS PERMITTED.—A
trust shall not be treated as failing to meet the requirements of
paragraph (2)(C) solely by reason of the fact that the governing
instrument of the trust permits the making of disproportionate
distributions which are limited by an ascertainable standard
relating to the health, education, support, or maintenance of the
beneficiaries.
"(4) TRUSTEE MAY ACCUMULATE INCOME.—A trust which other-
wise qualifies as a qualified minors' trust shall not be disqualified
solely by reason of the fact that the trustee has power to
accumulate income.
"(5) COORDINATION WITH SUBSECTION (C).—In appljdng subsec-
tion (c) to a qualified minors' trust, those provisions of section
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2935
2056(b) which a r e inconsistent with paragraph (3) or (4) of this 26 USC 2056.
subsection shall not apply.
"(6) DEATH OF BENEFICIARY BEFORE YOUNGEST CHILD REACHES
AGE 23.—Nothing in this subsection shall be treated as disquali-
fying an interest of a minor child in a trust solely because such
interest will pass to another person if t h e child dies before t h e
youngest child of the decedent attains age 23."
(2) A G E 23 FOR TERMINABLE INTEREST RULE IN THE CASE OF
ORPHANS' EXCLUSION.—The second sentence of subsection (c) of
section 2057 (relating to limitation in t h e case of life estate or 26 USC 2057.
other terminable interest) is amended by striking out " 2 1 " and
inserting in lieu thereof "23".
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2057
shall apply to the estates of decedents dying after December 31, note.
1976.
(m) DISCLAIMER BY SURVIVING SPOUSE W H E R E INTEREST PASSES TO
S U C H SPOUSE.—
(1) I N GENERAL.—Paragraph (4) of section 2518(b) (defining 26 USC 2518.
qualified disclaimer) is amended to read as follows:
"(4) as a result of such refusal, t h e interest passes without a n y
direction on t h e p a r t of the person making the disclaimer and
passes either—
"(A) to the spouse of the decedent, or
"(B) to a person other t h a n t h e person making the
disclaimer."
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 2518
shall apply to transfers creating an interest in the person note,
disclaiming made after December 31,1976.
(n) AMENDMENTS RELATING TO T A X ON GENERATION-SKIPPING
TRANSFERS.—
(1) EFFECTIVE DATE OF GENERATION-SKIPPING TRANSFER PROVI-
SIONS.—Section 2006(c) of t h e Tax Reform Act of 1976 (relating to 26 USC 2601
effective date of generation-skipping transfer provisions) is note. ^
amended by striking out "April 30, 1976" each place it appears
and inserting in lieu thereof " J u n e 11,1976".
(2) CERTAIN POWERS OF INDEPENDENT TRUSTEES NOT TREATED AS
POWERS.—Subsection (e) of section 2613 (relating to definitions 26 USC 2613
for purposes of t h e tax on generation-skipping transfers) is
amended to read as follows:
"(e) CERTAIN POWERS N O T T A K E N INTO ACCOUNT.—
"(1) LIMITED POWER TO APPOINT AMONG LINEAL DESCENDANTS OF
THE GRANTOR.—For purposes of this chapter, a n individual shall
be treated as not having a n y power in a t r u s t if such individual
does not have any present or future power in t h e t r u s t other t h a n
a power to dispose of t h e corpus of t h e t r u s t or t h e income
therefrom to a beneficiary or a class of beneficiaries who are
lineal descendants of t h e grantor assigned to a generation
younger t h a n t h e generation assignment of such individual.
"(2) POWERS OF INDEPENDENT TRUSTEES.—
"(A) I N GENERAL.—For purposes of this chapter, a n indi-
vidual shall be treated as not having a n y power in a t r u s t if
such individual—
"(i) is a trustee who h a s no interest in t h e trust,
"(ii) is not a related or subordinate trustee, and
"(ill) does not have a n y present or future power in t h e
t r u s t other t h a n a power to dispose of t h e corpus of t h e
92 STAT. 2936 PUBLIC LAW 95-600—NOV. 6, 1978
trust or the income therefrom to a beneficiary or a class
of beneficiaries designated in the trust instrument.
"(B) RELATED OR SUBORDINATE TRUSTEE DEFINED.—For pur-
poses of subparagraph (A), the term 'related or subordinate
trustee' means any trustee who is assigned to a younger
generation than the grantor's generation and who is—
"(i) the spouse of the grantor or of any beneficiary,
"(ii) the father, mother, lineal descendant, brother, or
sister of the grantor or of any beneficiary,
"(iii) an employee of a corporation in which the
stockholdings of the grantor, the trust, and the benefi-
ciaries of the trust are significant from the viewpoint of
voting control,
"(iv) an employee of a corporation in which the
grantor or any beneficiary of the trust is an executive,
"(v) a partner of a partnership in which the interest of
the grantor, the trust, and the beneficiaries of the trust
are significant from the viewpoint of operating control
or distributive share of partnership income,
"(vi) an employee of a corporation in which the
grantor or any beneficiary of the trust is an executive, or
"(vii) an employee of a partnership in which the
grantor or any beneficiary of the trust is a partner.".
(3) CLARIFICATION OF SECTION 2613(b)(2)(B).—Subparagraph (B)
26 use 2613. of section 2613(b)(2) (defining taxable termination for purposes of
the tax on generation-skipping transfer) is amended—
(A) by striking out "an interest and a power" and inserting
in lieu thereof a present interest and a present power", and
(B) by striking out "interest or power" and inserting in
lieu thereof "present interest or present power".
(4) ALTERNATE VALUATION IN CERTAIN CASES WHERE THERE IS
A TAXABLE TERMINATION AT DEATH OF OLDER GENERATION
BENEFICIARY
26 use 2602. (A) IN GENERAL.—Subparagraph (A) of section 2602(d)(1)
(relating to alternate valuation) is amended by inserting "(or
at the same time as the death of a beneficiary of the trust
assigned to a higher generation than such deemed trans-
feror)" after "such deemed transferor".
(B) SPECIAL RULES.—Subparagraph (A) of section 2602(d)(2)
(relating to special rules for alternate valuation) is amended
by inserting "(or beneficiary)" after "the deemed trans-
feror".
26 use 2613 (5) EFFECTIVE DATE.—
note. (A) Except as provided in subparagraph (B), the amend-
ments made by this subsection shall take effect as if included
26 use 2601 et in chapter 13 of the Internal Revenue Code of 1954 as added
"eq- by section 2006 of the Tax Reform Act of 1976.
(B) The amendment made by paragraph (1) shall take
effect on October 4,1976.
(o) ADJUSTMENT IN INCOME TAX ON ACCUMULATION DISTRIBUTIONS
FOR PORTION OF ESTATE AND GENERATION-SKIPPING TRANSFER
TAXES.—
26 use 667. (1) IN GENERAL.—Subsection (b) of section 667 (relating to tax
on accumulation distribution) is amended by adding at the end
thereof the following new paragraph:
"(6) ADJUSTMENT IN PARTIAL TAX FOR ESTATE AND GENERATION-
SKIPPING TRANSFER TAXES ATTRIBUTABLE TO PARTIAL TAX.—
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2937
"(A) I N GENERAL.—The partial tax shall be reduced by a n
amount which is equal to the pre-death portion of the partial
tax multiplied by a fraction—
"(i) t h e numerator of which is t h a t portion of the t a x
imposed by chapter 11 or 13, as the case may be, which is 26 USC 2001 et
attributable (on a proportionate basis) to amounts ^^9' 2601 et seq.
included in the acciimulation distribution, and
"(ii) t h e denominator of which is t h e amount of the
accumulation distribution which is subject to t h e t a x
imposed by chapter 11 or 13, as t h e case m a y be.
"(B) PARTIAL TAX DETERMINED WITHOUT REGARD TO THIS
PARAGRAPH.—For purposes of this paragraph, the term 'par-
tial tax' means t h e partial t a x imposed by subsection (a)(2)
determined under this subsection without regard to this
paragraph.
"(C) PRE-DEATH PORTION.—For purposes of this p a r a g r a p h ,
the pre-death portion of the partial t a x shall be a n amount
which bears the same ratio to the partial tax as the portion
of the accumulation distribution which is attributable to t h e
period before t h e date of the death of the decedent or t h e
date of the generation-skipping transfer bears to t h e total
accumulation distribution."
(2) EFFECTIVE DATE.—The a m e n d m e n t m a d e by p a r a g r a p h (1) 26 USC 667
shall apply— note.
(A) in t h e case of t h e t a x imposed by chapter 11 of t h e 26 USC 2001 ef.
Internal Revenue Code of 1954, to t h e estates of decedents seq.
dying after December 31,1979, and
(B) in t h e case of the t a x imposed by chapter 13, to a n y 26 USC 2601 et
generation-skipping transfer (within the meaning of section seq.
2611(a) of such Code) made after J u n e 11,1976.
(p) RELIEF OF EXECUTOR F R O M PERSONAL LIABILITY IN THE CASE OF
RELIANCE ON G I F T T A X RETURNS.—
(1) I N GENERAL.—Section 2204 (relating to discharge of fidu- 26 USC 2204.
ciary from personal liability) is amended by adding a t t h e end
thereof the following new subsection:
"(d) GOOD FAITH RELIANCE ON G I F T TAX RETURNS.—If t h e executor
in good faith relies on gift t a x returns furnished under section
6103(e)(3) for determining t h e decedent's adjusted taxable gifts, t h e 26 USC 6103.
executor shall be discharged from personal liability with respect to
any deficiency of the tax imposed by this chapter which is attributa-
ble to adjusted taxable gifts which—
"(1) a r e made more t h a n 3 years before t h e date of t h e
decedent's death, and
"(2) are not shown on such returns.".
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 2204
shall apply with respect to t h e estates of decedents dying after "ot^.
December 31,1976.
(q) INDEXING OF FEDERAL T A X L I E N S . —
(1) I N GENERAL.—Paragraph (4) of section 6323(f) (relating to 26 USC 6323.
indexing of tax liens) is amended to read as follows:
"(4) INDEXING REQUIRED WITH RESPECT TO CERTAIN REAL
PROPERTY.—In t h e case of real property, if—
"(A) under t h e laws of t h e State in which t h e real property
is located, a deed is not valid as against a purchaser of t h e
property who (at t h e time of purchase) does not have actual
notice or knowledge of t h e existence of such deed unless t h e
fact of filing of such deed has been entered and recorded in a
-pt. 3 20 : QL3
92 STAT. 2938 PUBLIC LAW 95-600—NOV. 6, 1978
public index at the place of filing in such a manner that a
reasonable inspection of the index will reveal the existence
ofthe deed, and
"(B) there is maintained (at the applicable office under
paragraph (1)) an adequate system for the public indexing of
Federal tax liens,
then the notice of lien referred to in subsection (a) shall not be
treated as meeting the filing requirements under paragraph (1)
unless the fact of filing is entered and recorded in the index
referred to in subparagraph (B) in such a manner that a reason-
able inspection ofthe index will reveal the existence ofthe lien."
26 use 6323. (2) REFILING OF NOTICE OF UEN.—Section 6323(gX2)(A) (relating
to refiling of notice of lien) is amended to read as follows:
"(A)if—
"(i) such notice of lien is refiled in the office in which
the prior notice Of lien was filed, and
"(ii) in the case of real property, the fact of refiling is
entered and recorded in an index to the extent required
by subsection (f)(4); and",
26 u s e 6323 (3) EFFECTIVE DATE.—
"ote. (A) The amendments made by this subsection shall apply
with respect to liens, other security interests, and other
interests in real property acquired after the date of the
enactment of this Act.
(B) If, after the date of the enactment of this Act, there is a
change in the application (or nonapplication) of section
26 use 6323. 6323(f)(4) of the Internal Revenue Code of 1954 (as amended
by paragraph (1)) with respect to any filing jurisdiction, such
change shall apply only with respect to liens, other security
interests, and other interests in real property acquired after
the date of such change,
(r) CLERICAL AMENDMENTS.—
(1) CLERICAL AMENDMENTS WITH RESPECT TO SECTION 6694.—
26 use 6694. (A) I N GENERAL.—Section 6694 (relating to failure to file
information with respect to carryover basis property) which
was added by section 2005(d)(2) ofthe Tax Reform Act of 1976
26 use 6698. is redesignated as section 6698.
(B) DEFICIENCY PROCEDURES NOT TO APPLY.—Section 6698
(as redesignated by subparagraph (A)) is amended by adding
at the end thereof the following new subsection:
"(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of
26 use 6211 ef chapter 63 (relating to deficiency procedures for income, estate, gift,
*«?• and certain excise taxes) shall not apply in respect of the assessment
or collection of any penalty imposed by subsection (a)."
(C) TABLE OF SECTIONS.—The table of sections for sub-
26 use 6671 et chapter B of chapter 68 is amended by striking out
*^^" "Sec. 6694. Failure to file information with respect to carryover basis
property."
and inserting in lieu thereof the following:
"Sec. 6698. Failure to file information with respect to carryover basis
property."
26 use 2051. (2) CLERICAL AMENDMENT TO SECTION 2051.—Section 2051 (de-
fining taxable estate) is amended by striking out "exemption
and".
(3) CLERICAL AMENDMENT TO SECTION 1016(a).—Subsection (a) of
26 use 1016. section 1016 (relating to adjustments to basis) is amended by
redesignating paragraph (23) as paragraph (21).
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2939
(4) CLERICAL AMENDMENT TO SECTION 6324B(b).—Subsection (b) 26 USC 6324.
of section 6324B (relating to period of lien for additional estate
tax attributable to farm, etc., valuation) is amended by striking
out "qualified farm real property" a n d inserting in lieu thereof
"qualified real property".
(5) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 6698
shall apply to estates of decedents dying after December 31,1976. note.
SEC. 703. CORRECTIONS OF PUNCTUATION, SPELLING, INCORRECT
CROSS REFERENCES, ETC.
(a) ERRONEOUS CROSS REFERENCE IN INVESTMENT CREDIT.—
(1) AMENDMENT OF SECTION 46(f)(8).—The first sentence of 26 USC 46.
paragraph (8) of section 46(f) is amended by striking out "subsec-
tion (a)(6)(D)" and inserting in lieu thereof "subsection (a)(7)(D)".
(2) AMENDMENT OF SECTION 46(g)(5).—Paragraph (5) of section
46(g) (relating to definitions) is amended by striking out "Mer- 46 USC 1245
chant Marine Act, 1970" and inserting in lieu thereof "Merchant "ote.
Marine Act, 1936". 46 USC 1101 et
(3) AMENDMENT OF SECTION 48(d)(1)(B).—Subparagraph (B) of seq.
section 48(d)(1) is amended by striking out "section 46(a)(5)" and
inserting in lieu thereof "section 46(a)(6)".
(4) AMENDMENT OF SECTION 48(d)(4)(D).—Subparagraph (D) of 26 USC 48.
section 48(d)(4) is amended by striking out "section 57(c)(2)" a n d 26 USC 57.
inserting in lieu thereof "section 57(c)(1)(B)".
f\\) PRPPATD TJPCAT SFRVTCKS
(1) P a r a g r a p h (2) of section 2134(e) of t h e Tax Reform Act of 26 USG 120
1976 is amended by striking out "section 120(d)(6)" and inserting note.
in lieu thereof "section 120(d)(7)". 26 USC 120.
(2) P a r a g r a p h (20) of section 501(c) is amended by striking out 26 USC 501.
"section 501(c)(20)" and inserting in lieu thereof "this
paragraph".
(c) AMENDMENTS RELATING TO SECTIONS 219 AND 220.—
(1) AMENDMENT OF SECTION 219(C)(4).—Paragraph (4) of section
219(c) (relating to participation in governmental plans by certain 26 USC 219.
individuals) is amended by striking out "subsection (b)(3)(A)(iv)"
each place it appears and inserting in lieu thereof "subsection
(b)(2)(A)(iv)".
(2) A M E N D M E N T OF SECTION 220(b)(1)(A).—Subparagraph (A) of
section 220(b)(1) (relating to retirement savings for certain mar- 26 USC 220.
ried individuals) is amended by striking out "amount paid to t h e
account or annuity, or for t h e bond" and inserting in lieu thereof
"amount paid to t h e account, for t h e annuity, or for t h e bond".
(3) AMENDMENT OF SECTION 220(b)(4).—Paragraph (4) of section
22()(b) is amended by inserting "described in subsection (a)" after
"any payment".
(4) AMENDMENT OF SECTION 408(d)(4).—Subparagraph (A) of 26 USC 408.
section 1501(b)(5) of t h e Tax Reform Act of 1976 is amended to
read as follows:
"(A) by inserting 'or 220' after '219' each place it appears,
and".
(5) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 46 note.
shall apply to taxable years beginning after December 31, 1976.
(d) ACCRUAL ACCOUNTING FOR F A R M CORPORATIONS.—Subsections
(a) a n d (g)(2) of section 447 a r e each amended by striking out 26 USC 447.
"preproductive expenses" a n d inserting in lieu thereof "preproduc-
tive period expenses".
(e) A M E N D M E N T O F SECTION 911.—Subsection (c) of section 911 is 26 USC 911.
amended by redesignating paragraph (8) as paragraph (7).
92 STAT. 2940 PUBLIC LAW 95-600—NOV. 6, 1978
(f) TRANSITION RULE FOR PRIVATE FOUNDATIONS.—Subparagraph
26 use 4940 (F) of section 101(1)(2) of the Tax Reform Act of 1969 (relating to
note. private foundations savings provisions) is amended by striking out
the period at the end of clause (i) and inserting in lieu thereof a
comma.
(g) LOBBYING BY PUBLIC CHARITIES.—
(1) LOBBYING NONTAXABLE AMOUNT.—Paragraph (2) of section
26 use 4911. 4911(c) (defining lobbying nontaxable amount) is amended by
striking out "proposed expenditures" in the heading of the table
contained in such paragraph and inserting in lieu thereof
' 'exempt purpose expenditures''.
(2) TECHNICAL AMENDMENTS RELATING TO SECTION 501.—
26 use 501. (A) Section 2(a) of Public Law 94-568 is amended by
striking out "subsection (h) as subsection (i) and by inserting
after subsection (g)" and inserting in lieu thereof "subsection
(i) as subsection (j) and by inserting after subsection (h)".
26 use 501. (B) Subsection (g) of section 501 of the Internal Revenue
Code of 1954 (as inserted by section 2(a) of Public Law
94-568) is redesignated as subsection (i).
26 use 501 (C) The amendments made by this paragraph shall take
note. effect on October 20, 1976, as if included in Public Law
94-568.
(h) AMENDMENTS TO FOREIGN TAX PROVISIONS.—
26 use 907 (1) Paragraph (2) of section 1035(c) of the Tax Reform Act of
note. 1976 (relating to tax credit for production-sharing contracts) is
amended—
26 use 907. (A) by inserting "(as defined in section 907(c) of such
Code)" after "gas extraction income" in subparagraph (A),
and
(B) by striking out "(as defined in section 907(c)(1) of such
Code)" in subparagraph (B) and inserting in lieu thereof "(as
so defined)".
26 use 999. (2) Paragraph (1) of section 999(c) (relating to international
26 use 995. boycott factor) is amended by striking out "995(b)(3)" and insert-
ing in lieu thereof "995(b)(l)(F)(ii)".
(3) Paragraph (2) of section 999(c) is amended by striking out
"995(b)(l)(D)(ii)" and inserting in lieu thereof "995(b)(l)(F)(ii)".
(i) AMENDMENTS TO DISC PROVISIONS.—
26 use 995. (1) The last two sentences of section 995(b)(1) (relating to
deemed distributions to shareholders of a DISC) are amended—
(A) by striking out "gross income (taxable income in the
case of subparagraph (D))" and inserting in lieu thereof
"income"; and
(B) by striking out "subparagraph (E)" and inserting in
lieu thereof "subparagraph (G)".
(2) Subparagraph (G) of section 995(b)(1) is amended by striking
out "subsection (D)" and inserting in lieu thereof "subsection
(d)".
26 use 996. (3) Paragraph (2) of section 996(a) (relating to qualifying
26 use 995. distributions) is amended by striking out "section 995(b)(1)(E)"
26 use 995 and inserting in lieu thereof "section 995(b)(1)(G)".
o^*TTcr ono (4) Paragraph (5) of section 1101(g) of the Tax Reform Act of
o5 TTci^ no?' 1976 is amended by striking out "section 993(e)(3)" and inserting
26 use 995. ^ jjg^ thereof "section 995(e)(3)".
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2941
(j) AMENDMENTS RELATING TO DEADWOOD PROVISIONS.—
(1) TAX EXEMPT GOVERNMENTAL OBUGATIONS.—
(A) The heading of paragraph (1) of section 103(b) is 26 USC 103.
amended to read as follows:
"(1) SUBSECTION (a) (i) OR (2) NOT TO APPLY.—".
(B) Paragraph (1) of section 103(c) is amended by striking
out "(a) (1) or (4)" each place it appears (including in the 5: ^
paragraph heading) and inserting in lieu thereof "(a) (1) or
(2)".
(C) Subparagraph (A) of section 103(c)(2) is amended by
striking out "subsection (a) (1) or (2) or (4)" and inserting in
lieu thereof "subsection (a) (1) or (2)".
(D) Paragraph (5) of section 103(c) is amended by striking
out "subsection (d)(2)(A)" and inserting in lieu thereof "para-
graph (2)(A)".
(E) Subsection (d) of section 103 is amended by striking out
"subsection (c)(4)(G)" and inserting in lieu thereof "subsec-
tion (b)(4)(G)".
(2) AMENDMENTS RELATING TO SECTION 311(d)(2).—
(A) Subsection (b) of section 2 of the Bank Holding: Com- 26 USC 311.
pany Tax Act of 1976 is amended—
(i) by striking out "subparagraph (F)" and inserting in
lieu thereof "subparagraph (E)", and
(ii) by striking out "subparagraph (G)" and inserting
in lieu thereof "subparagraph (F)".
(B) Subparagraph (H) of section 311(d)(2) is redesignated as
subparagraph (G).
(C) The amendments made by this paragraph shall take 26 USC 311
effect as if included in section 206) of the Bank Holding "ote.
Company Tax Act of 1976.
(3) AMENDMENT TO SECTION 453(c).—Paragraph (3) of section
453(c) is amended— 26 USC 453.
(A) by striking out "(or by the corresponding provisions of
prior revenue laws)" in the first sentence, and
(B) by striking out the last sentence.
(4) AMENDMENT OF SECTION 801(g).—Paragraphs (l)(B)(ii) and
(7) of section 801(g) are each amended by striking out "subpara- 26 USC 801.
graph (A), (B), (C), (D), or (E) of section 805(d)(1)" and inserting in 26 USC 805.
lieu thereof "any paragraph of section 805(d)".
(5) AMENDMENT OF SECTION 1033(a)(2).—Clause (ii) of section
103(a)(2)(A) is amended by striking out "subsection (c)" and 26 USC 1033.
inserting in lieu thereof "subsection (b)".
(6) AMENDMENT OF SECTION 1375(a).—Paragraph (2) of section
1375(a) is amended by striking out "such excess" each place it 26 USC 1375.
appears and inserting in lieu thereof "such gain".
(7) AMENDMENT OF SECTION I56l0b)(3).—Paragraph (3) of section
15610b) is amended by striking out "804(a)(4)" and inserting in 26 USC 1561.
lieu thereof "804(a)(3)'^.
(8) AMENDMENTS OF SECTION 1402.—
(A) The last paragraph of section 1402(a) of the Internal 26 USC 1402. •
Revenue Code of 1954 (definition of net earnings from self-
employment) is amended by striking out "subsection (i)"
each place it appears and inserting in lieu thereof "subsec-
tion (h)".
(B) Section 1402(c)(6) of such Code (definition of trade or
business) is amended by striking out "subsection (h)" and
inserting in lieu thereof "subsection (g)".
(9) AMENDMENT TO SECTION 46(a).—Subparagraph (C) of section
1901(b)(1) of the Tax Reform Act of 1976 is amended by striking 26 USC 46.
92 STAT. 2942 PUBLIC LAW 9 5 - 6 0 0 — N O V . 6, 1 9 7 8
26 u s e 46. out "Section 46(a)(3)" a n d inserting in lieu thereof "Section
46(a)(4)".
26 u s e 6504. (10) AMENDMENT RELATING TO SECTION 6504.—Subparagraph
(D) of section 1901(b)(37) of t h e Tax Reform Act of 1976 is
amended by striking out "6515" a n d inserting in lieu thereof
"6504".
26 u s e 37 note. (11) TERRITORIES.—Subsection (c) of section 1901 of t h e Tax
Reform Act of 1976 (relating to Territories) is amended by
striking out paragraph (1) thereof.
26 u s e 2011 (12) ESTATE AND GIFT TAXES EFFECTIVE DATE.—Subsection (c) of
note. section 1902 of the Tax Reform Act of 1976 is amended to read as
follows:
"(c) EFFECTIVE DATES.—
26 u s e 2011 "(1) ESTATE TAX AMENDMENTS.—The a m e n d m e n t s made by
note. paragraphs (1) through (8), a n d paragraphs (12) (A), (B), a n d (C),
of subsection (a) a n d by subsection (b) shall apply in t h e case of
estates of decedents dying after t h e date of the enactment of this
Act, and the amendment made by paragraph (9) of subsection (a)
shall apply in t h e case of estates of decedents dying after
December 31,1970.
26 u s e 2501 "(2) GIFT TAX AMENDMENTS.—The amendments made by para-
note. graphs (10), (11), and (12) (D) and (E) of subsection (a) shall apply
with respect to gifts made after December 31,1976."
26 u s e 4973 (13) EFFECTIVE DATE FOR AMENDMENT MADE BY SECTION
note. l904(a)(22)(A).—Notwithstanding section 1904(d) of t h e Tax
Reform Act of 1976, t h e a m e n d m e n t made by section
1904(a)(22)(A) of such Act shall t a k e effect on t h e date of t h e
enactment of such Act.
(14) AMENDMENTS TO SOCIAL SECURITY ACT.—
42 u s e 402. (A) Section 202(v) of the Social Security Act is amended by
striking out "section 1402(h)" each place it appears a n d
inserting in lieu thereof "section 1402(g)".
42 u s e 405. (B) Section 205(p)(3) of such Act is amended by striking out
"Secretary of t h e Treasury" a n d inserting in lieu thereof
"Secretary of Transportation".
42 u s e 410. (C) Section 210(a)(6)(B)(v) of such Act is amended by strik-
ing out "Secretary of t h e Treasury" a n d inserting in lieu
thereof "Secretary of Transportation".
42 u s e 411. (D) Section 211(a)(2) of such Act is amended by striking out
"(other t h a n interest described in section 35 of t h e Internal
26 u s e 35. Revenue Code of 1954)".
42 u s e 411. (E) Section 211(c)(6) of such Act is amended by striking out
"section 1402(h)" a n d inserting in lieu thereof "section
1402(g)".
(k) CAPITAL LOSS CARRYOVERS.—Clause (ii) of section 1212(a)(1)(C)
26 u s e 1212. (relating to capital loss carryovers for foreign expropriation losses) is
amended by striking out "exceeding t h e loss y e a r " a n d inserting in
lieu thereof "succeeding t h e loss year".
(1) AMENDMENTS RELATING TO CERTAIN AIRCRAFT M U S E U M S . —
(1) P a r a g r a p h (2) of section 4041(h) (defining aircraft museum)
26 u s e 4041. is amended by striking out " t e r m 'aircraft' m e a n s " and inserting
in lieu thereof " t e r m 'aircraft museum' means".
(2) Subsection (i) of section 4041 (as added by section
1904(a)(1)(C) of t h e T a x Reform Act of 1976) is redesignated a s
subsection (j).
26 u s e 6427. (3) Subsection (d) of section 6427 (relating to repayment of t a x
on fuels used by certain aircraft museums) is amended by
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2943
striking out "Secretary or his delegate" and inserting in lieu
thereof "Secretary".
(4) Paragraph (1) of section 7609(c) (defining summons to which 26 use 7609.
section applies) is amended by striking out "6427(e)(2)" and
inserting in lieu thereof "6427(f)(2)".
(m) INSPECTION BY COMMITTEE OF CONGRESS.—Paragraph (2) of
section 6104(a) (relating to inspection by committee of Congress) is 26 use 6104.
amended by striking out "Section 6103(d)" and inserting in lieu 26 use 6103.
thereof "Section 6103(f)".
(n) AMENDMENT OF SECTION 6501.—Subsections (h), (j), and (o) of
section 6501 are each amended by striking out "section 6213(b)(2)" 26 use 6501.
and inserting in lieu thereof "section 6213(bX3)".
(o) CONFORMING AMENDMENTS TO NEW DEFINITION OF TAXABLE
INCOME.—
(1) Subparagraph (A) of section 443(b)(2) (relating to computa- 26 use 443.
tion based on 12-month period) is amended—
(A) by striking out "taxable income" the second and third
places it appears in clause (i) and inserting in lieu thereof
"modified taxable income", and
(B) by amending clause (ii) to read as follows:
"(ii) the tax computed on the sum of the modified
taxable income for the short period plus the zero bracket
amount."
(2) Paragraph (1) of section 443(b) is amended by striking out
"gross income for such short period (minus the deductions
allowed by this chapter for the short period, but only the adjusted
amount of the deductions for personal exemptions)" and insert-
ing in lieu thereof "modified taxable income for such short
period".
(3) Subsection (b) of section 443 is amended by adding at the
end thereof the following new paragraph:
"(3) MODIFIED TAXABLE INCOME DEFINED.—For purposes of this
subsection the term 'modified taxable income' means, with
respect to any period, the gross income for such period minus the
deductions allowed by this chapter for such period (but, in the
case of a short period, only the adjusted amount of the deductions
for personal exemptions).'
(4) The amendments made by this subsection shall apply to 26 use 443
taxable years beginning after December 31,1976. note.
(p) CONFORMING AMENDMENTS TO REPEAL OF SECTION 317 OF TRADE
EXPANSION ACT OF 1962.— 26 u s e 172.
(1) AMENDMENTS OF SECTION 1 7 2 . —
(A) Subparagraph (A) of section 172(b)(1) (relating to years 26 u s e 172.
to which loss may be carried) is amended to read as follows:
"(A) Except as provided in subparagraphs (D), (E), (F), and
(G), a net operating loss for any taxable year shall be a net
operating loss carryback to each of the 3 taxable years
preceding the taxable year of such loss."
(B) Paragraph (3) of section 172(b) (relating to special rules)
is amended by striking out subparagraphs (A) and (B) and by
redesignating subparagraphs (C), (D), and (E) as subpara-
graphs (A), (B), and (C), respectively.
(C) Subparagraph (B) of section 172(b)(3) (as redesignated
by subparagraph (B)) is amended by striking out "subpara-
graph (C)(iii)" each place it appears and inserting in lieu
thereof "subparagraph (A)(iii)".
92 STAT. 2944 PUBLIC LAW 95-600—NOV. 6, 1978
(2) AMENDMENT OF SECTION 6501(h).—Subsection (h) of section
26 use 6501. 6501 (relating to net operating loss or capital loss carryback) is
amended by striking out the last sentence.
(3) AMENDMENT OF SECTION 6511(d)(2).—The first sentence of
26 use 6511. section 6511(d)(2)(A) (relating to special period of limitation for
net operating loss or capital loss carrybacks) is amended by
striking out "except that—" and all that follows down through
the period at the end of such sentence and inserting in lieu
thereof the following: "except that with respect to an overpay-
ment attributable to the creation of, or an increase in a net
operating loss carryback as a result of the elimination of exces-
sive profits by a renegotiation (as defined in section 1481(a)
26 u s e 1481. (1)(A)), the period shall not expire before the expiration of the
12th month following the month in which the agreement or order
for the elimination of such excessive profits becomes final."
26 u s e 172 (4) EFFECTIVE DATE.—The amendments made by this subsection
note. shall apply with respect to losses sustained in taxable years
ending after the date of the enactment of this Act.
(q) CONFORMING AMENDMENT TO REPEAL OF SECTION 2 OF THE
20 u s e 1001 EMERGENCY INSURED STUDENT LOAN ACT OF 1969.—
note. (1) IN GENERAL.—Paragraph (5) of section 103(d) (relating to
26 u s e 103. arbitrage bonds) is amended by striking out "section 2 of the
20 u s e 1001 Emergency Insured Student Loan Act of 1969" and inserting in
note. lieu thereof "section 438 of the Higher Education Act of 1965".
20 u s e 1087-1 (2) EFFECTIVE DATE.—The amendment made by paragraph (1)
26 u s e 103 shall apply with respect to payments made by the Commissioner
note. of Education after December 31,1976.
26 u s e 46 note (r) EFFECTIVE DATE.—Except as otherwise provided, the amend-
ments made by this section shall take effect on October 4, 1976.
TITLE VIII—AMENDMENTS RELATING TO
SOCIAL SECURITY ACT
SEC. 801. GRANTS TO STATES FOR SOCIAL SERVICES.
42 use 1397a. (a) AMOUNT To BE ALLOCATED TO STATES.—Section 2002(a)(2)(A) of
the Social Security Act is amended—
(1) by striking out "$2,500,000,000" and inserting in lieu
thereof "the amount specified in clause (ii)";
(2) by inserting "(i)" after "(2)(A)"; and
(3) by adding the following clause at the end thereof:
"(ii) The amount specified for purposes of clause (i) is $2,500,000,000
for fiscal years prior to fiscal year 1979, $2,700,000,000 for fiscal year
1979, and $2,500,000,000 for fiscal years after fiscal year 1979.".
42 u s e 1397a (b) ADDITIONAL AMOUNT FOR C H I L D D A Y C A R E SERVICES IN FiSCAL
note. YEAR 1979.—Section 3 of Public Law 94-401 is amended—
(1) in the matter preceding paragraph (1) of subsection (a)—
(A) by striking out the word "and" which appears after
"1977,", and
(B) by inserting after "1978," the following: "and the fiscal
year ending September 30,1979,",
(2) in subsection (a)(1), by adding after and below subparagraph
(B) the following new subparagraph:
"(C) 107.407 per centum of the amount of the limitation so
imposed (as determined without regard to this section) in the
case of such fiscal year ending September 30, 1979, or",
PUBLIC LAW 95-600—NOV. 6, 1978 92 STAT. 2945
(3) in subsection (a)(2), by striking out "or either such fiscal
year" and inserting in lieu thereof "or any such fiscal year",
(4) in subsection Ot>), by striking out "or either fiscal year" and
inserting in lieu thereof "or any fiscal year",
(5) in subsections (c)(1) and (c)(2)(A), by striking out "or either
fiscal year" and inserting in lieu thereof "or any fiscal year
(other than the fiscal year ending September 30,1979)",
(6) in subsection (d)(1)—
(A) by striking out the word "or" which appears after
"1977,", and
(B) by inserting after "1978" the following: ", or the fiscal
year ending September 30,1979", and
(7) in subsection (d)(2), by striking out "for either such fiscal
year" and inserting in lieu thereof "for any such fiscal year".
SEC. 802. CHANGE IN PUBLIC ASSISTANCE MATCHING FORMULA, AND
INCREASE IN AMOUNT OF PUBLIC ASSISTANCE DOLLAR LIMI-
TATIONS, FOR PUERTO RICO, THE VIRGIN ISLANDS, AND
GUAM IN FISCAL YEAR 1979.
(a) PUBLIC ASSISTANCE MATCHING FORMULA.—Section 1118 of the 42 use 1318.
Social Security Act is amended by adding at the end thereof the
following new sentence: "For purposes of the preceding sentence, the
term 'Federal medical assistance percentage' shall, in the case of
Puerto Rico, the Virgin Islands, and Guam, mean 75 per centum
when applied to quarters in the fiscal year ending September 30,
1979.".
(b) DOLLAR LIMITATIONS.—Subsection (a) of section 1108 of such Act 42 USC 1308.
is amended—
(1) in paragraph (1)—
(A) by striking out "or" at the end of clause (D),
(B) by striking out the semicolon at the end of clause (E)
and inserting in lieu thereof "other than the fiscal year 1979,
or"; and
(C) by adding at the end thereof the following new
subparagraph:
"(F) $72,000,000 with respect to the fiscal year 1979;",
(2) in paragraph (2)—
(A) by striking out "or" at the end of clause (D),
(B) by striking out "; and" at the end of clause (E) and
" inserting in lieu thereof "other than the fiscal year 1979, or",
and
(C) by adding at the end thereof the following new
subparagraph:
92 STAT. 2946 PUBLIC LAW 95-600—NOV. 6, 1978
"(F) $2,400,000 with respect to the fiscal year 1979;", and
(3) in paragraph (3)—
(A) by striking out "or" at the end of clause (D),
(B) by striking out the period at the end of clause (E) and
inserting in lieu thereof "other than the fiscal year 1979, or",
and
(C) by adding at the end thereof the following new
subparagraph:
"(F) $3,300,000 with respect to the fiscal year 1979.".
Approved November 6, 1978.
LEGISLATIVE HISTORY:
HOUSE REPORTS: No. 95-1445 (Comm. on Ways and Means) and 95-1800 (Coram.
of Conference).
SENATE REPORT No. 95-1263 (Comm. on Finance).
CONGRESSIONAL RECORD, Vol. 124 (1978):
Aug. 10, considered and passed House.
Oct. 5, 6, 7, 9, 10, considered and passed Senate, amended.
Oct. 15, Senate and House aigreed to conference report.
o
